A new survey of 682 British milk producers has found that 14 per cent plan to leave the sector within the next two years. Another 14 per cent were undecided.
The survey, completed by the Milk Development Council (MDC), also highlighted that low levels of investment by producers indicated a lack of confidence in the sector's future.
Britain's dairy producers have faced falling farmgate prices for their milk over the last decade and further consolidation in the sector has been anticipated.
"If farmers do what they say they're going to the net effect will be a fall in production of around 400m litres by the 2007-2008 quota year," said Ken Boyns, head of economics at the MDC.
"There are more farmers leaving the industry and not enough farmers increasing production to avoid this."
The news follows a government report last year warning that Britain's milk production could fall to 1bn litres below its allocated 14bn-litre quota from the European Union over the next couple of years.
Not everybody in the industry is convinced this would be a bad thing, however.
Tim Smith, chief executive of dairy processor Arla UK, said recently that cutting up to one billion litres out of Britain's milk production could help those remaining in the sector work more profitably. He said there was too much milk on the UK market.
The National Farmers' Union (NFU), the biggest representative for UK milk producers, also accepted last autumn that more consolidation would be necessary among Britain's milk producers to maintain efficiency and competitiveness in the face of EU reforms to the Common Agricultural Policy.
A quarter of the farmers who told the MDC survey they would continue producing milk said they planned to increase production in the future, suggesting production will become more concentrated.
Still, NFU dairy officials have repeatedly warned that low farmgate milk prices offered little incentive for many producers. The average price in Britain is 18p per litre, the lowest out of the 15 pre-accession EU countries.
A potentially worrying trend for the whole UK dairy industry is the apparent lack of grassroots investment by producers.
The MDC farmer survey said the majority of producers were not planning to invest in anything other than general maintenance over the next five years. More than two thirds planned to invest less than £25,000 in that time.
The MDC said this reflected producers' uncertainty about their future in the sector.
Ken Boyns said the survey "suggests a change of pace in divergence in the industry with some farmers investing heavily in future production capacity while more are planning on leaving."
Almost one in ten farmers said they would invest at least £100,000 in farm development over the next five years.