INVESTMENT in processing capacity for higher value milk powders could be the way forward to secure the dairy industry in south west Wales.

The remoteness of Pembrokeshire’s dairy farmers from their customers is not a major issue, according to a leading dairy analyst.

But Chris Gooderham told farmers attending the AHDB Dairy Conference in St Clears that if he was in charge of a hypothetical ‘Welsh Milk PLC’, he would encourage investment in processing facilities for higher value milk powders.

Investors would need a guarantee of consistent milk volume and quality. “All of these things are important if a processor is to be persuaded to invest,’’ said Mr Gooderham, AHDB Dairy lead analyst.

But according to a recent Welsh government-commissioned study, the region has sufficient factory space to cope with expanding milk production. It concluded that there was no need to build any new plant in the region.

Currently 1 billion litres of milk leaves Wales unprocessed. Gwyn Jones, board chairman of AHDB Dairy, believes that, contrary to the Welsh government report, more processing capacity is needed in the region. “There is nowhere more competitive than west Wales for producing milk therefore processing is vital. We certainly need for processing in south Wales,’’ said Mr Jones.

The dairy industry is experiencing its most turbulent period in decades but the gap between global milk production and demand is closing.

Over-production is now 10 million litres a day compared to 30 million litres in July 2015. “The demand line is continuing to rise, it is catching up with the extra milk we have produced,’’ Mr Gooderham told the conference.

And he saw encouraging signs that point to a price improvement. “China’s demand has been held back because stock levels have been high but they are eating into those stocks,’’ he said. The challenge is in predicting when markets will reach equilibrium, he added.

Between January and mid-February 2016, production in Great Britain reduced by 500,000 litres a day. “We would usually expect a 2% rise over that period. If you look back in history this situation has not happened before, it can’t be just the influence of the weather,’’ said Mr Gooderham.

He forecast a 2016 production peak potentially lower than 2015 but added: “The big unknown remains the weather.’’

Overall EU production is still running 5.6% above last year but in January last year production was not increasingly as quickly as in previous years.

The biggest contributor to European over-production is the Netherlands. For the nine months to January 2016, 5 billion additional litres of milk were produced compared to the same period in the previous year. The Netherlands contributed 1 billion of these litres and Ireland 830,000 litres.