Consumers face price increases of 3p on a pint of milk because of a shortage caused by the wet weather.

The threat of high prices was signalled yesterday when First Milk, Britain’s largest dairy cooperative, declared force majeureon August milk prices.

Industry experts immediately said that other milk cooperatives were bound to make a similar warning to customers.

Force majeure is invoked only when circumstances beyond the control of a supplier prevent the terms of a contract being fulfilled.

Leading dairy companies claim that milk supplies are already 10 per cent down because persistent rainfall has forced farmers to keep cattle indoors, which reduces milk yield.

July production figures are to be published shortly, and it is possible that the decline may be more marked.

Industry experts believe that prices to farmers must rise from 20p to at least 25p a litre and that with global pressure on food such as wheat, chicken and meat, and shortages of vegetables caused by floods, supermarkets will be forced to put up prices.

Traditionally, retail chains have absorbed extra costs of staple items such as milk and bread and sell them as loss-leaders. They may do so again but insiders believe the era of cheap food in Britain is coming to an end and that they will have to pass on increases to customers in the autumn.

The average retail price for milk at present is 55p a litre. So if supermarkets wish to recoup the 5p extra they pay to farmers, then milk in stores will have to go up to at least 60p. Premium milk ranges including organic may cost even more.

The problem is that the wet summer has meant dairy cattle have had to be kept in sheds and fed on silage rather than grass. The result is that milk yield has fallen.

The average cow produces 20 litres of milk a day but for the past two months the average has been 17 or 18 litres a day.

Industry sources suggested last night that other leading milk brokers, MilkLink, and Dairy Farmers of Britain, would also have to give warning of failure to meet contracts to their customers.

First Link supplies almost 25 per cent of the milk sold by Dairy Crest, the country’s biggest milk producer, which supplies Sainsbury’s, Waitrose and Marks & Spencer.

Dairy Crest has 1,600 farmers who sell direct to them and which makes up 75 per cent of the market supply.

Arthur Reeves, the firm’s milk purchasing director, said: “There is a shortage of liquid milk. It will not mean shortages in the shops but it will mean prices will go up.”

Peter Kendall, president of the National Farmers’ Union, is today also to give warning of the need for higher milk prices.

Tom Hind, the union’s chief dairy adviser, said he doubted that consumers would notice milk shortages but he expected them to be paying higher prices. He suggested that some small corner shops and convenience stores might decide to keep only small stocks of milk in future rather than pay increased costs to wholesalers.

Total milk production in is 14 billion litres a year in a market worth £3 billion. Half of the milk is sold in cartons or bottles and the rest is used for the production of cheese, butter and skimmed milk powder.

Mr Reeves said that stocks of skimmed milk and butter were high and so dairies had been able to shift extra liquid supply for milk.

But if this continued, he suggested, prices would rise for any product containing milk, cheese or butter, such as pizzas, cakes, yoghurts and puddings.

The dairy wars

— Milk is in short supply around the world. In the United States ice-cream makers are raising prices and in France yoghurt makers are worried about costs

— The drought comes as affluent consumers in East Asia switch from a diet of vegetables and rice to wheat and animal protein - think burgers and milk shakes

— Britain has a large fresh milk market, which absorbs about half of national production. Fresh milk does not travel far and farmers are tied to long-term contracts with dairies and supermarket chains

— A pint of milk is a critical component of a shopping basket and stores such as Tesco and Asda use the price of a pint as a weapon to beat the competition

— Tesco was recently forced to raise its farm gate price to 22p per litre after protests by farmers and the threat of investigations by competition regulators

— In an attempt to stimulate more production, Robert Wiseman, a leading dairy processor, is paying 25p per litre to farmers able to supply additional milk

Carl Mortished