A Defra-funded study has highlighted the very real dangers posed to the dairy industry by volatile and uncertain market conditions, say Westcountry NFU officials.

The report, commissioned by Defra from the University of Manchester, draws two critical conclusions:

A higher than anticipated number of larger, more profitable herds have quit production.

The scenario of milk output falling below quota by more than 1bn litres is highly likely.

NFU dairy board chairman Gwyn Jones said: "This report reinforces our view that milk price cuts and general volatility have seriously eroded the confidence of all producers, threatening the future viability of domestic milk supply.

"If a sustainable future is to be achieved for the dairy industry, a profitable supply base is vital. That simply will not happen if shortsighted pricing decisions from those further up the dairy chain continue to drive even the largest, most efficient herds from production, as evidenced by this report. The inherent competitiveness of dairy producers in England and Wales coupled with fantastic market opportunities should be enough to ensure a long-term stable production base, but dairy farmers must have the confidence to invest in the future of their businesses.

Fair and profitable returns to dairy farmers are the only ways in which this can be achieved.

"If those further up the chain are to enjoy the benefits of secure supply, then they must address the culture of tit-for-tat price cuts that threatens to undermine the whole industry. The signals must be right."