Dairy farmers have had a tough old year with milk prices down from a high of 50p per litre to nearer 35p and while values are expected to improve, producers will also soon have to prove they are farming more sustainably.

That was the warning from a packed out Scottish Dairy Hub seminar at AgriScot, where Drew Sloan, vice-president of corporate development at Semex, said the best milk contracts in the future will be for producers who can show they are reducing their carbon emissions.

"We are already seeing the beginnings of new markets being created whereby producers are being offered an increased milk price if they can show they have reduced their use of artificial fertiliser, increased nutrient enrichment, and been able to improve the health and well being of their herds through genetics," said Mr Sloan.

Such is the demand for milk produced more sustainably, that he said that Costa Coffee had switched from buying their milk from Freshways to Arla because Freshways had no sustainability strategy. Within a month Freshways developed such a marketing ploy, and all companies are having to follow suit to remain at the forefront.

While sustainability means different things to different people, Mr Sloan encouraged producers to do what they can to reduce carbon emissions, which can be as simple as using certain sires and relying more on home-grown forages compared to bought in feeds.

George Burgess, director of agriculture and rural economy for the Scottish Government also stressed that farmers need to become aware of Scope 1, 2, and 3 emissions when such scopes are the basis for mandatory greenhouse gas reporting in the UK.

On a more optimistic note, Chris Walkland, agricultural journalist and market analyst said the future looks a lot more positive for the dairy sector in 2024 compared to 2023.

He added that milk volumes are falling in the UK and throughout Europe, which in turn is likely to bolster ex-farm prices in the coming year when butter, cream, and cheese values are already improving.

"UK milk volumes are going down against the three-year average and there are signs that demand for dairy is picking up in China, but there is a nervousness about what will happen after Christmas," pointed out Mr Walkland.

"Butter and cream prices have been going up since September and mild cheddar has started to nudge up but there is nothing on the cards to say milk prices will be near 40p per litre anywhere soon, but that can all change very quickly," he said.

Long-term future supplies are also expected to fall according to a report from AHDB. The levy board has highlighted GB calf registrations to dairy dams are down almost 4000 head or 0.9% at 445,181 head in the third quarter of this year (July-September) in the same period in 2022.

Dairy farmers across the UK have been struggling with tightening farm margins this season with input costs remaining elevated while milk prices drop.

Their recent producer survey showed there was a 4.5% drop year on year in the number of dairy producers in GB.

Paired with this, farmers have been moving towards block calving systems. The gap between Q2 and Q3 registrations has been steadily growing, supporting this change. Registrations in Q3 2023 were up by almost 140,400 head versus Q2 2023. This is in comparison to a difference of 93,300 head in 2014.