The butter mountain is back, after European Commission bosses spent €600 million (£506 million) of taxpayers’ money this year in an attempt to rescue farmers from the effects of a collapse in dairy product prices.

The intervention came as wholesale prices of butter have plunged from $3,700 per tonne to $1,800 in the past year — with farmers bearing the brunt of the collapse, while supermarkets keep their prices up.

On the supermarket shelf, the price of butter is up 8 per cent on a year ago, the price of milk is up 10 per cent and cheddar cheese is unchanged, prompting complaints from the farmers lobby and the European intervention.

Michael Mann, agriculture spokesman for the Commission, said: “We have done what we can. We have spent €600 million since the beginning of the year. We are not going to fiddle around.”

It is the first time since 2005 that the Commission has intervened in the dairy market, prompting fears of a return to the much-criticised European Union butter and milk powder mountains of the 1980s.

The butter mountain was finally eliminated last year, after several years of strong demand, as newly affluent Asians turned to dairy products, only to swell as the market turned. So far this year Europe has accumulated 80,000 tonnes of butter and 180,000 tonnes of milk powder.

Hayley Campbell-Gibbons, chief dairy adviser for the National Farmers Union, is concerned that retail margins are rising during a dairy recession. “This is the big issue — margins. It is clear there is plenty of profit in the supply chain.”

In Britain, the price of skimmed-milk power is down £2,100 per tonne to £1,500 per tonne and the average farm gate milk price has fallen from a record of 28p in 2007 to 24p per litre.

Grocers, meanwhile, are earning more from milk every year. According to Datum, the researcher, margins from selling milk have risen in the past decade from 7p per litre in 1999 to about 19p per litre today. For the food retailer, the gross margin on cheddar cheese is now as high as 50 per cent.

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