Little difference between milk used for commodity markets and that heading for milk bottles in supermarkets means that the UK's farmgate milk prices are kept low, according to a new report from the Milk Development Council (MDC).
The report comes following farmgate price cuts on milk by Britain's top three dairy processors - Arla Foods UK, Robert Wiseman and Dairy Crest - over the last three months.
They all blamed falling commodity prices for the cuts, alongside other factors such as cuts to retail milk prices in March and soaring input costs.
The MDC warned that commodity milk was allowing dairy firms to dangerously undercut each other.
"As long as a tanker load of milk going to a commodity processor can be interchanged for a tanker load of milk going to the liquid market, the potential to undercut will always exist," it said.
The body, funded by a dairy industry levy, suggested preventing this problem by differentiating milk on commercial grounds. This, it said, could mean using different quality standards or varying the composition of milk so that it had different values in different markets.
Average farmgate milk prices in the UK are around 18 pence per litre, below the cost of production for many producers and unsustainable in the long-term, according to producer groups.
Statistics show, however, that farmgate prices have been falling across the European Union recently, as input costs rise and commodity price cuts under the European Commission's Common Agricultural Policy take hold.
Both the Commission and much of the dairy industry agree on the need to produce more added value products in Europe and reduce reliance on commodities.
Yet, the MDC, among others in the UK, has also repeatedly called for a better balance between supply and demand in milk.
There are signs this idea is taking hold. Arla UK said when cutting farmgate prices this month that it had a "long-term strategy to encourage farmers to produce milk with a composition that reflects market demand".
The firm said it was aiming for milk with a butterfat content between 3.7 and 3.9 per cent, to serve its mainly liquid milk markets.