More than one in ten dairy farmers, around 16 per cent, said they planned to leave the sector within the next two years, according to the Milk Development Council's annual Farmers' Intentions survey. Producer numbers could drop by a third up to 2008 if those intending to quit are joined by a similar number that claim they are still 'undecided'. The survey, completed in February, casts a shadow over an announcement by supermarket Tesco last week that it would pay around 850 of its supplier farmers 22 pence per litre (ppl) for their milk. Average farmgate milk prices have hovered around 18ppl, below the cost of production for some and prompting 1,000 farmers to quit the sector over the last year. The MDC surveyed 657 milk producers for its annual 'intentions' report. Previous predictions on numbers likely to quit the sector have turned out to be accurate. As well as those intending to leave, plans for investment in the sector also appear limited. The proportion of those intending to increase production has fallen from 26 to 20 per cent over the last year, while more than three quarters do not intend to invest more than £25,000 over the next five years. There also appear to be real concerns about the cost of complying with new legislation, such as changes to the Nitrogen Vulnerable Zone regulations. It remains to be seen what the Tesco announcement last week can do to put dairy farmer confidence on a firmer footing in the UK. Early signs suggest a promising impact. The National Farmers' Union, which recently said the dairy farming community was in "meltdown", said the Tesco scheme was "the most significant and encouraging development in the dairy industry for a very long time". It has called on other retailers to follow Tesco's example of issuing direct contracts. And, Tesco's announcement also found support in the processing community, namely from Arla Foods UK, which supplies 40 per cent of the supermarket's milk.