The dairy market in Britain is failing to operate effectively, a committee of MPs has concluded.

In a report published on Tuesday, members of the Commons environment, food and rural affairs committee said there was no clear reason for the 18p per litre increase in milk between farm and shop.

"The dairy market is not operating correctly," the committee found.

While dairy firms make only around 3p profit for each litre, the MPs pointed to evidence suggesting that around 18p per litre of the retail price of milk is being taken up by the dairy companies' costs.

"The dairy companies will, of course, need to use some or all of that 18p per litre in collecting and transporting raw milk and then processing it into liquid milk," said the report.

"We believe that the dairy companies should provide dairy farmers with a detailed justification of why it is they appear to need to take such a significant chunk of the retail price of liquid milk to cover their costs."

Pressure

The committee also urged farmers to put pressure on dairy companies to reduce costs.

"We urge those dairy farmers who are not members of farmer-owned co-operatives to consider carefully their decision to remain outside the co-op framework," the report said.

"Although co-op membership may be a less financially attractive option for farmers in the short term, it is the most effective long-term option available for farmers to gain greater control over when, to whom and at what price they sell their milk.

"If farm gate prices are to increase, farmers must act to redress the uneven distribution of power currently in the dairy supply chain."

Campaign group Farm said the report's findings were an  "honest and objective analysis" of the problems facing the industry.

And the retail industry also gave its support to the findings.

"Food retailers have long supported the establishment of commercially oriented, farmer owned co-operatives and have provided financial backing for English Farming and Food Partnerships, which was set up to help farmers achieve this," said Kevin Hawkins of the British Retail Consortium.

"However, we do not believe that many - if any - dairy farmers who currently supply the major dairies will decide to join a co-operative if this continues to entail a reduction in their supply terms."