MILK producers have been underestimating the real costs of production by more than 20pc, according to an industry working party representing production and recording interests.

The working party, initiated by the Royal Association of British Dairy Farmers after industry-wide consultation in August last year, is composed of members of ADAS, Promar, the John Easterbrooke Partnership and practical dairy farmers.

At the start, one of the group's main objectives was to ensure that everyone in the dairy food chain understood how much it really cost to produce a litre of milk, given the misinformation then prevalent that producers could make a profit and have enough to re-invest even at 16p/litre.

"Having succeeded in drawing the various organisations together for round-table discussions, it soon became apparent that fixed costs and farm overheads were problem areas," said Tim Brigstocke, RABDF chairman and leader of the working party. "But the key element was that, in most recording schemes' figures, the farmer's own remuneration was either underestimated or excluded altogether.

"With margins continuing to be low, or in many cases negative, it is essential that producers don't kid themselves any longer that they can exist and grow at a milk price of 16p or even 18p/litre.

"According to our study, the true costs of production could be as high as 23p/litre, taking account of the farmer's remuneration, family labour costs, pensions and staff development.

"It is our view that these costs have been underestimated routinely by at least 20pc for many years and the time is well overdue for the real situation to be broadcast far and wide.

"It would undoubtedly be in the best interests of the British dairy farmer if all milk recording bodies and all companies involved in dairy management were to adopt the new RABDF guidelines whenever they published information on the costs of milk production.

"The guidelines have already been accepted by many of the key companies in this field and the signs are good for industry-wide acceptance."