DAIRY farmers are probably losing more money than they care to admit, according to a second survey published this week.

Carried out in spring by the Royal Agricultural Society of England and Deloitte and Touche Agriculture, it involved 194 detailed responses from dairy farmers who had 27,000 cows producing 192m litres of milk.

It showed the average cost of production was 21.9p a litre, including rent, finance and the opportunity cost of quota, but it soared to 27p a litre for those producing less than 6,000 litres a cow.

"When the average sale price of a litre of milk is about 16p, these figures are alarming," said Mr Mark Hill, national partner with Deloitte and Touche.

He said many dairy farmers ignored overheads when looking at production costs and believed they amounted to only 14p or 15p a litre. "In other words, they think they are making a small profit or at worst breaking even," he said.

In the short term, established producers could afford to overlook their finance costs, but those costs were preventing the next generation of dairy farmers from getting started.

Mr Hill suggested three options for dairy farmers - grow, get together or get out.

Expanding production could save 1p or 2p but was unlikely to justify the increased risk. Joint ventures, where two or three producers joined forces, could reduce overall costs by up to 3p a litre. However, getting together was not always easy. "It not only needs like-minded people, but the location of milking facilities and grazing land is critical to merging dairy enterprises successfully," said Mr Hill.