DAIRY farmers are warning milk production could hit rock bottom unless more supermarkets and shops follow Tesco's lead and introduce measures to help the country's dairy farmers.

Just hours after Tesco unveiled two new initiatives to help increase the price farmers receive for their milk, the NFU warned the "writing is on the wall" for the dairy industry.

Tesco intends offering direct contracts to around 850 farmers, paying them 22p per litre for their milk, which is well above the current market average.

While this milk will not be any more expensive for consumers, Tesco is also launching a new "localchoice" milk scheme.

This will cost consumers more, but the milk will be sourced from farms near the stores where it will be sold, and will offer higher returns for smaller farms.

NFU President, Pete Kendall, welcomed the new measures calling them the "most significant and encouraging development in the dairy industry for a very long time."

But Mr Kendall followed up his praise with a warning, in the wake of the Milk Development Council publication of its fourth annual Farmer Intentions Survey, which shows more dairy farmers giving up.

Mr Kendal said: "Although it gives me no satisfaction to say so, this survey bears out precisely what I have been hearing over and over again in meetings and talking to dairy farmers around the country.

"A combination of low prices, rising costs and an ever-growing regulatory burden, has knocked the stuffing out of milk producers' morale and they are voting with their feet."

He added the NFU had warned supermarkets and processors sooner or later milk production would start to fall if the squeeze on prices continued.

He said: "Judging by this survey, that day will soon be upon us." Mr Kendall insisted the lead set by Tesco needed to be followed up throughout the sector. "The writing is on the wall and it could not spell out a clearer or more urgent message."