Cuts to the milk price paid to farmers will drive them out of the dairy business and increase prices for consumers in the long run, farming leaders have warned.

The National Farmers' Union and other farming unions are holding a summit in London to fight back against the price cuts which were announced by three leading processors, Arla Foods UK, Robert Wiseman Dairies and Dairy Crest.

The reductions of up to 2p per litre from August follow cuts for many dairy farmers imposed in the spring, and the NFU is warning that producing a litre of milk now costs many farmers significantly more than what they are paid for it.

The cuts could reduce the average dairy farmer's annual income by up to £40,000, the NFU warned.

Vice president Adam Quinney has urged Farming Minister Jim Paice to "bang heads together" within the sector to ensure farmers are paid a fair price for their milk, and to push back on regulation that adds costs to producers.

He said farmers who do not have contracts that see them supplying Tesco, Sainsbury's, Marks & Spencer or Waitrose will be losing £350 to £400 per cow per year.

"The latest round of cuts to milk prices by three major dairy processors will mean dairy farmers are making a significant loss for every litre of milk they produce," he said.

He said processors had competed with low milk prices in order to win contracts with supermarkets. They had met the shortfall by selling cream on world markets at good prices which had now fallen, making them push the price of milk down for farmers.

Farming minister Jim Paice is understood to be holding talks with representatives of the processors and farmers in a bid to broker a deal on fair milk prices and contracts before the summit.

Farmers who have direct contracts with some supermarkets are paid on the basis of production costs, and it is hoped a voluntary code could be worked out which sees all dairy producers paid according to a formula which takes costs into account.