More than 1,000 farmers will not be paid for their milk on Monday, after the UK’s largest dairy company announced it was delaying payments because of a crash in prices.

First Milk, a co-operative owned by British farmers, said 2014 had been a “year of volatility that has never been seen before” in the global dairy industry. It will delay Monday’s payments to farmers by two weeks and all subsequent payments by a fortnight.

Sir Jim Paice, the Conservative MP who is chairman of First Milk, said: “We are a business owned by dairy farmers. The board are acutely aware of the difficulties this current extreme volatility is causing First Milk members and the UK dairy industry.”

“We don’t know how long this current market downturn will last, and we are aware that hundreds of UK dairy farmers are unlikely to find a home for their milk this spring.

“Our priority is to make the business and our processing assets as secure as possible in order that we can continue to process and market every litre of our members’ milk.”

First Milk is also increasing levies on its members, which it said would put the business on a “stronger platform” ahead of the spring.

Milk prices around the world have fallen by more than 50% over the past 12 months, as good weather has helped many farmers deliver a surplus, while producers in the US and New Zealand have been ramping up production. But demand from China has been lower than expected, while a Russian import ban has led to a glut of cheese and yogurts on the market.

In the UK, the big supermarkets have started a price war, which has led to the price of a four-pint carton of milk tumbling from around £1.39 to £1 in Tesco and Sainsbury’s. Asda is selling a four-pint carton for just 89p, the cheapest of the big four supermarkets.

Farmers are leaving the industry in droves, with around 60 dairy farmers quitting in December alone, according to the National Farmers Union. The NFU warned on Monday that fewer than 5,000 dairy farmers could be left in the UK by 2025, if current rates of decline continue. At the end of 2014, the number of dairy farmers had dipped below 10,000 for the first time, a 50% fall in since 2002.

NFU president Meurig Raymond warned that dairy farmers were “haemorrhaging money” and called for supermarkets to do more to back British suppliers. “We can’t blame consumers for not buying British if the product isn’t on display in the first place,” he told an industry conference in Glasgow. He said supermarkets were “shouting” about their British credentials on milk, but not doing enough to source other dairy produce from UK farmers. “We still import around 100,000 tonnes of cheddar, 350,000 tonnes of soft cheeses and 100, 000 tonnes of butter. It’s even worse on yoghurts and chilled desserts where over half what we see on our retail shelves comes from outside the UK.”

Speaking earlier on the BBC Radio 4 Today programme he said: “We have seen the product devalued – liquid milk in particular is now cheaper than water ... There are very few dairy farmers making any money, most are haemorrhaging money at this present time, particularly those at 20p a litre. You have got processors not making any money.”

David Handley, chairman of lobby group Farmers For Action, told Today that the industry had to change after “10 years of turmoil”.

He said: “Most dairy farmers in this country have lowered costs to a point now that they can’t lower them any more. He said: “Most dairy farmers in this country have lowered costs to a point now that they can’t lower them any more. We have got a fantastic product, the consumer ... wants to buy it.”

“Why are we allowing retailers to discount it, purely and simply – and evidence has come directly out of their mouths – to get people into their stores? That should not be happening to any industry, whether you are producing a radio, a litre of milk or a bottle of water.”

Supermarkets insist that recent price cuts do not affect the price they pay farmers. A spokeswoman for Asda said: “We are absorbing the cost of this price cut and are not changing the way we pay our milk supplier.” She added that Asda had “a positive record” in UK sourcing of milk and cheese, with all of its own-brand cheese and butter made with British milk.

Tesco sources its milk from a group of 600 farmers and said prices were always above the cost of production: “Whatever price we charge, it doesn’t impact on how we pay our farmers,” a spokesperson said.