A report commissioned by First Milk this week found that milk farmers were failing to offset their production costs, and are in need of a "fair trade" system like those used in developing agricultural markets to ensure long-term supply stability. However, Dr Joop Kleibeuker, head of the EDA told DairyReporter.com that such a measure could serve only to distort agricultural reforms designed to ensure profitability for everyone in the milk supply chain. "The ongoing reforms of the European Common Agricultural Policy (CAP) have meant that there is no bottom in the market but also no ceiling," he said. "This is the choice we have made in European dairy, and we are confident that there is a good future ahead for the entire industry on the world stage." Farming reforms Kleibeuker conceded that with the dairy industry now working towards a system where prices paid for milk are defined by market development, costs were likely to be more volatile. "For farmers supplying milk to the dairy industry and consumers, there are times when it is difficult to cover costs, but there are also moments when it is hard for processors as well," he stated. "We are all working within these developments, so everyone has to cut costs where possible to maintain profit." Ultimately, Kleibeuker said that the CAP reforms were vital to ensure that farmers could cover their costs in a way that ensured value for processors and consumers as well as allowing for future investment. Farming on the brink This optimism appears not to be shared by some players in the UK's dairy industry. According to the First Milk report, which was compiled by Promar International, studies of a number of farms in Scotland, England and Wales found that the average cost of producing milk for farmers was less then what they were being paid. In the twelve months up to 31 March 2007, the average price paid to farmers for their milk was 17.4p (€0.22) per litre, while the cost of production was 22.08p (€0.28) per litre, said Promar. By these estimates, an average size farm within the country with an annual capacity of 800,000 litres of milk would results in a loss of £37,000 (€48,315) during the year, the report added. Peter Humphreys, chief executive of First Milk, said that despite recent rises in the price paid by processors and consumers for milk, costs has risen sharply in the last ten years to a level that has bought UK dairy farming to "the brink of collapse." "We have all become very fond of helping overseas agricultural producers with Fairtrade policies, which ensure a fair reward for the farmers, not just the distributors," he stated. "It is high time we took the same approach at home with 'fair trade' for British dairy farmers." New payment formula In its findings, the report therefore called for a new formula to be used in calculating a sustainable milk price that takes into account rising production as well as the farmers' labour costs in the final price. Ultimately, the report claimed that a rate of 29.64 pence per litre would be required.