Successive price rises in autumn 2000 and spring 2001 took the price farmers were paid from around 16-17p per litre, where most were making a loss, up to 20-21p. There was a new spirit of understanding, with retailers in particular showing an interest in talking to farmers.
But oversupply this spring pushed prices back down again. After a further cut imposed by the major dairies, the most militant farmers began blockading processors' depots. Analysts say farmgate prices have dropped 3.25p since April.
Safeway director of communications Kevin Hawkins has represented retailers at many meetings with farmers at the grass roots as well as on the government's Milk Review Taskforce. He believes there are basic flaws in the market set-up, but suggests the major dairies are exploiting the situation. " When the dairies cut their price to farmers there was no knock-on for Safeway."
Wiseman is one of the dairies that has faced the full fury of militant farmers' actions, with attempts to blockade its depots at Manchester and Droitwich in July, but sales and marketing director Sandy Wilkie says: "I know why farmers are frustrated. But you can't buck the market.
"We were surprised by Dairy Crest's cut (1.25p from July 1) but you have to respond to remain competitive. Over the last six months, we've paid an average of 17.5p to our direct suppliers  not 13p or 14p as has been reported. We always pay in the top quartile."
There is a glimmer of hope as most people agree prices will rise in the autumn as the seasonal decline in production helps to bring supply more into line with demand.
But Hawkins is concerned that may be too late. "It is generally assumed the smaller farmers need over 20p per litre to cover their costs and at 17p they are making a significant loss."
But he warns it is not just small producers who are suffering. Many bigger farmers bought quota from the smaller ones who left the business. Those who bought at last summer's prices, borrowing money to do so, are now having to pay back those loans while the price they are receiving has dropped by 4p per litre.
Terrig Morgan, chairman of the NFU milk and produce committee, says the slump in prices is penalising farmers who have tried to invest in their businesses to make them more efficient. "Dairy requires the highest capital investment of any form of farming. No one can afford to pay back loans on what we are getting now."
All parties have different views on the way ahead. Morgan believes one way farmers could gain more muscle would be to form larger co-ops which could then form joint ventures with existing dairies or go into processing themselves. He points to Arla in Denmark, which controls about 90% of that country's market.
Sussex dairy farmer William Goodwin is also a director of a milk purchasing company. He is less enthusiastic, but welcomes moves by the United Milk and Milk Link co-ops to provide processing facilities. "They give farmers a stronger position when dealing with the big processors because they know the co-ops can take that milk out of the market."
The most immediate barrier to the formation of co-ops big enough to influence pricing is the prospect of the competition authorities barring any one group from controlling a significant portion of the market. The Curry report and Labour Party sentiment towards co-operatives might help to overcome that hurdle.
While sympathetic to the farmers, Hawkins asks if farmer-led co-ops have the necessary management skill. "The Danes have had decades of experience, but we are still finding our way," he warns. Second, how can the co-ops compete with the scale economies of the big dairies?
Not surprisingly Jim Begg, director general of the Dairy Industry Association (DIAL), agrees that farmer-led co-ops will not be the salvation of the industry. He argues: "We must not confuse market trends for structural difficulties. Prices are not just under pressure in the UK. There is oversupply in Europe generally. The worse thing that could happen would be to take a decision because of current prices, which are related to wider price trends, not the structure of the market."
Begg believes there needs to be a move away from the lower priced liquid milk market to more value added products. Also he says, all parts of the supply chain need to look at ways of improving efficiency and removing costs.
Hawkins also points out that if the EU intervention system worked effectively in the UK, as it does in other member states, it would relieve some of the pressure on prices. The system should provide a floor for farm gate prices, and even out fluctuations in supply by diverting excess into powdered milk. Partly because of a shortage of processing facilities in the UK (although the co-ops are addressing this problem) this has not happened.
With the groups within the supply chain unable to agree a way forward the best hope may come from an outside source. KPMG has been commissioned by the Milk Development Council to produce a comprehensive analysis of the industry with recommendations for change. It will be working closely with the Food Chain Centre and is likely to report by Christmas.
Farmers in particular will be hoping it can come up with a plan for a more prosperous future, although for many it may already be too late.
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But oversupply this spring pushed prices back down again. After a further cut imposed by the major dairies, the most militant farmers began blockading processors' depots. Analysts say farmgate prices have dropped 3.25p since April.
Safeway director of communications Kevin Hawkins has represented retailers at many meetings with farmers at the grass roots as well as on the government's Milk Review Taskforce. He believes there are basic flaws in the market set-up, but suggests the major dairies are exploiting the situation. " When the dairies cut their price to farmers there was no knock-on for Safeway."
Wiseman is one of the dairies that has faced the full fury of militant farmers' actions, with attempts to blockade its depots at Manchester and Droitwich in July, but sales and marketing director Sandy Wilkie says: "I know why farmers are frustrated. But you can't buck the market.
"We were surprised by Dairy Crest's cut (1.25p from July 1) but you have to respond to remain competitive. Over the last six months, we've paid an average of 17.5p to our direct suppliers  not 13p or 14p as has been reported. We always pay in the top quartile."
There is a glimmer of hope as most people agree prices will rise in the autumn as the seasonal decline in production helps to bring supply more into line with demand.
But Hawkins is concerned that may be too late. "It is generally assumed the smaller farmers need over 20p per litre to cover their costs and at 17p they are making a significant loss."
But he warns it is not just small producers who are suffering. Many bigger farmers bought quota from the smaller ones who left the business. Those who bought at last summer's prices, borrowing money to do so, are now having to pay back those loans while the price they are receiving has dropped by 4p per litre.
Terrig Morgan, chairman of the NFU milk and produce committee, says the slump in prices is penalising farmers who have tried to invest in their businesses to make them more efficient. "Dairy requires the highest capital investment of any form of farming. No one can afford to pay back loans on what we are getting now."
All parties have different views on the way ahead. Morgan believes one way farmers could gain more muscle would be to form larger co-ops which could then form joint ventures with existing dairies or go into processing themselves. He points to Arla in Denmark, which controls about 90% of that country's market.
Sussex dairy farmer William Goodwin is also a director of a milk purchasing company. He is less enthusiastic, but welcomes moves by the United Milk and Milk Link co-ops to provide processing facilities. "They give farmers a stronger position when dealing with the big processors because they know the co-ops can take that milk out of the market."
The most immediate barrier to the formation of co-ops big enough to influence pricing is the prospect of the competition authorities barring any one group from controlling a significant portion of the market. The Curry report and Labour Party sentiment towards co-operatives might help to overcome that hurdle.
While sympathetic to the farmers, Hawkins asks if farmer-led co-ops have the necessary management skill. "The Danes have had decades of experience, but we are still finding our way," he warns. Second, how can the co-ops compete with the scale economies of the big dairies?
Not surprisingly Jim Begg, director general of the Dairy Industry Association (DIAL), agrees that farmer-led co-ops will not be the salvation of the industry. He argues: "We must not confuse market trends for structural difficulties. Prices are not just under pressure in the UK. There is oversupply in Europe generally. The worse thing that could happen would be to take a decision because of current prices, which are related to wider price trends, not the structure of the market."
Begg believes there needs to be a move away from the lower priced liquid milk market to more value added products. Also he says, all parts of the supply chain need to look at ways of improving efficiency and removing costs.
Hawkins also points out that if the EU intervention system worked effectively in the UK, as it does in other member states, it would relieve some of the pressure on prices. The system should provide a floor for farm gate prices, and even out fluctuations in supply by diverting excess into powdered milk. Partly because of a shortage of processing facilities in the UK (although the co-ops are addressing this problem) this has not happened.
With the groups within the supply chain unable to agree a way forward the best hope may come from an outside source. KPMG has been commissioned by the Milk Development Council to produce a comprehensive analysis of the industry with recommendations for change. It will be working closely with the Food Chain Centre and is likely to report by Christmas.
Farmers in particular will be hoping it can come up with a plan for a more prosperous future, although for many it may already be too late.
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