CO-OPERATION across the milk industry has a key role to play in the future of British dairy farming.

A three-month investigation undertaken by Wye College on behalf of the Milk Development Council found that the real need in the UK was for a co-ordinated effort between dairy farmers and processors to regard the UK industry as a single supply chain competing with other supply chains for the consumer's custom.

While there have been many calls for dairy farmers to join together to set up their own processing companies so that returns can be fed back to them directly, the work undertaken on behalf of the MDC warns against this approach initially.

Although processing is seen as an option, limiting factors such as capital requirements and difficulties in competing in existing markets were seen as significant.

Most important of all was the concern that, if an increasing number of co-operative processors were set up, particularly in the commodities markets, there was the distinct danger of over-capacity having a downward pressure on prices.

Instead of taking the processor ownership route, the real opportunities identified by the research were for milk producers to work with established processors to develop new markets and to create added value brands or products.

Strong brands such as regional milk were able to command higher margins enabling the price paid to dairy farmers to rise.

Rationalisation of larger producer groups was also identified as a key to improving the price paid to milk producers by reducing transaction costs, capturing economies of scale and scope, and improving the producer groups' bargaining position.

The report finds that the three successor organisations to Milk Marque have moved in the right direction and are likely to benefit from reduced costs and better relationships with customers.

"This is not a short term process," said Dr Andrew Fearne of Wye College. "However, we believe that a good start has been made.