Scotland's dairy industry is heading for collapse unless supermarkets realise they cannot continue to increase their margins at farmers' expense, according to NFU Scotland. The Union has reiterated its warning as a report by the Milk Development Council concludes that supermarkets' margins on milk and dairy products continue to grow.

Farmers across Scotland have been involved in blockades of milk supplies in recent weeks as anger at the squeeze on their income grows. A succession of liquid milk price cuts by the three main milk processors (Arla, Dairy Crest and Wiseman) have been forced on farmers as a result of a fierce competition to secure supermarket contracts. Whilst the trend of increasing retail margins and reducing farmgate margins is common across the EU, the decline has been most rapid in the UK, according to the MDC.

The report also highlights the need for the UK dairy industry to improve the development of its high value markets if it is to strengthen its competitive position. On a positive note, the report confirms the growth in milk consumption in the UK, with particular improvements in the sales of branded milk and cheese.

NFUS President John Kinnaird said:

"There is positive news in this report in terms of increasing consumer demand for milk and real potential for developing added-value markets. However, the industry simply won't be able to take advantage of either of these if supermarkets continue to increase their margins at farmers' expense.

"The big supermarkets have happily pointed the finger at the processors for the failure to pass on to farmers a fair share of the recent increase in retail prices. Yet, the financial squeeze on dairy farms across Scotland is a direct result of supermarkets negotiating unsustainable contracts with processors which can only be afforded by cutting prices to farmer suppliers.

"The market is clearly failing farm businesses. UK dairy farmers have been bottom of the Europe price league for ten years, yet our retail prices remain amongst the highest.

"Dairy farmers are not asking for the earth, simply a fair price. Supermarkets are making tens of millions of pounds on liquid milk every year. A small proportion of that revenue being passed down the chain could make a massive difference and provide the platform for the industry to prosper. That is in everyone's interest, including the supermarkets and their customers."