Everyone in the milk supply chain must work harder to add rather than subtract value at every stage, said the National Farmers' Union (NFU), as part of a six-point action plan released to coincide with the Dairy Supply Chain Forum meeting in London.
The UK dairy industry has struggled to raise earnings over the last couple of years, increasing concerns among producers and processors, despite a surge in branded product sales.
Mansel Raymond, head of dairy in NFU Wales, said producer confidence had been "knocked for six" by continued cuts to farmgate milk prices and extra cost pressures from new environmental regulations.
Two of Britain's biggest dairy processors, Dairy Crest and Robert Wiseman, again cut their milk prices this week, amid fierce criticism from producers.
"There is no future for a dairy industry which continues to squeeze producers," said Gwyn Jones, head of the NFU dairy board. "Dairy farmers will vote with their feet and milk production will drop leading to inefficient processing plants and job losses."
Jones said the situation was now critical. NFU figures claim that milk producers' combined debt has reached £2bn, while operating costs have risen by two pence per litre over the last three years; leaving producers making an average 1.5p loss on every litre they produce.
Britain has the lowest farmgate milk price on average in Western Europe, at around 18p per litre, according to data from the Milk Development Council.
Processors, however, say cost pressures on them, such as the rising power of supermarkets and soaring plastic and energy prices, have left them little choice but to pay producers less for their milk.
David Curry, chairman of cross-industry association Dairy UK, warned the dairy sector not to turn in on itself. "The climate is difficult because all elements of the dairy chain are under pressure. There is no purpose in looking for villains within it."
The NFU, as part of its six-pronged industry plan, repeated its call for processors, supermarkets and consumers to buy British.
Britain's dairy trade deficit jumped up 20 per cent last year to £893m. Economists at the Milk Development Council said this was because the UK continued to export low value commodities like milk powder and butterfat, while importing added value dairy products.
The issue has gained greater publicity in the last week, after Dairy Crest launched a new advert campaign criticising its rival Arla Foods for selling Anchor butter that has been shipped in from New Zealand.