Rabobank is recommending Dutch dairy farmers wait before making new investments and consider temporarily scaling back milk production because of the sharp drop in milk prices.

The bank, which is the main source of finance for the Dutch dairy sector, says it expects milk prices will drop further in the coming quarter and that many farmers are already in financial difficulty, the Financieele Dagblad reports.

The guaranteed milk price which major dairy producers such as FrieslandCampina pay has dropped to 28.5 cents a litre for August but production costs are around 36 cents a litre. A year ago, the guaranteed price was almost 40 cents.

The drop is due to over-production on the global market and prices are not expected to recover until next year when demand in China recovers, the FD says.

There have been protests about low milk prices in France and Belgium, forcing the authorities there to take action.

EU milk quotas were scrapped on April 1 and experts said at the time some countries, including the Netherlands, were expected to increase production sharply when restrictions were lifted.

The quotas were introduced in 1984 to prevent over-production that led to ‘milk lakes’ and ‘butter mountains’.