Added value is Europe's only path, Mandelson

Mandelson, the European Union trade commissioner, underlined the need for European producers to reduce their reliance on commodity products.

"In sum, as China becomes the industrial workshop of the world, India a great service provider, Brazil the most competitive supplier of bulk commodities, my job as trade commissioner is to cut the deals that offer Europe a sustainable future as a top-quality, knowledge-intensive, innovation-leading, provider of industrial goods, services and food - because that's the only value-added future on offer."​

He also told the conference, in Birmingham, that competition authorities could do more to curb retailer power and make sure more money was passed down the chain.

"The question of undue monopoly power in the supply chain is undoubtedly a real issue, which competition policy could address."​

European dairy companies have faced intense margin pressure over the last year amid rising input costs, retailer price cuts and the EU's Common Agricultural Policy (CAP) reform.

Figures released by Dutch dairy Campina show how the impact of CAP reform kicked in last year.

The group said aid it received from the EU dropped from €140m to €127m between 2003 and 2004. Yet, this fell to around €58m in 2005 and, the firm predicts, will halve again over the next two years.

Mandelson told conference members the EU could simply not continue to spend 40 per cent of its budget on agriculture, though warned this did not mean the CAP was obselete.

Current CAP reforms include price cuts on commodity dairy goods up to 2007, but EU agriculture spending is locked down at current levels until 2013.

France, the biggest recipient, has vehemently supported this policy, while the UK last year led a counter-charge in favour of cutting CAP spending sooner and pumping more cash into research.

The prospect of a mid-term review in 2008, agreed in the new EU budget deal, threatens re-ignite the row.

Dairy companies, meanwhile, have already begun a shift to added value products that are less dependent on EU subsidies and pricing than commodity goods like milk powder and butterfat.

Newly released figures from Britain's Milk Development Council show that UK cheese production has risen from 30,000 to 33,000 tonnes over the last 15 months.

Skimmed milk powder production has dipped to its lowest level for three-and-a-half years - under 6,000 tonnes per year.

This trend is expected to continue across the European Union up to 2012, according to a recently released European Commission report.