EVERY litre of milk dairy farmers produce is costing them an average of 3.42p - more than twice the 1.5p they were losing a year ago.

A report, British Milk - What price 2007? says that at the same time, the average cost of milk production has risen by 16.43 per cent.

The Royal Association of British Dairy Farmers (RABDF) and the National Farmers' Union (NFU) say it is imperative for the dairy supply chain to take action.

Lyndon Edwards, RABDF chairman, said: "The average farmgate milk price in 2006/07 was 17.90p per litre (ppl), while our work shows that the average cost of production during the same period was 21.32ppl, without taking into account the exceptional costs farmers were faced with or providing any scope for essential business re-investment."

Mr Edwards said expenses and regulatory costs would continue to rise this year.

He said: "It is imperative that the supply chain acknowledges the significance of our findings and swiftly takes action to counteract the dire situation British dairy farmers are contending with."

Gwyn Jones, NFU dairy board chairman, said that, despite being among the most efficient milk producers in Europe, UK dairy farmers faced a bleak future.

He said: "We need to re-address the imbalance in the supply chain, increase the milk price at farmgate and, above all, give producers increased confidence to invest in the future of their business. If we fail to value our milk producers now, we face losing them forever."