Quality prime cattle destined for slaughter are now worth at least 250p per kg on the hook – one Scottish plant is offering 260p with no weight restrictions – but the national breeding herd continues to decline.

The December census figures from the Scottish Government estimate that, over the previous year, the beef breeding herd in Scotland fell by just over 3 per cent to 470,000 cows: in 1997 the herd numbered 515,000 cows.

A similar trend is evident throughout much of the European Union with the exception of France, where there has been a marginal increase. Figures from the Meat and Livestock Commission (MLC) show that the number of prime cattle processed last year in Great Britain fell 3.8 per cent to 1.77 million animals.

The layman may find it difficult to understand why with cattle at record prices the herd should still be shrinking. The answer is that the reforms of the common agricultural policy in 2005 removed the direct link between subsidies and production and introduced a new regime through which farmers receive the single farm payment.

Even at current prices, there are few farmers who are making a true profit from beef without recourse to the SFP. In the past, the UK could rely on imports from South America if domestic supplies were in short supply. But that situation no longer prevails, according to Kim Haywood, director of the NBA.

She said: "More production in the main exporting countries is being absorbed internally and even less beef is being shipped out to countries that do not produce enough of their own. However, UK beef farmers … are working hard to cope with the new regime and rapidly inflating feed and fertiliser costs.

"But it is abundantly clear that current market prices are not enough to encourage production to continue at the level retailers need to sustain their sales. So more encouragement from the market, at prices well beyond current levels, is needed."

Despite the prices paid to farmers rising sharply over the past three months, there has been little change in the supermarkets. However, during the 52 weeks to 24 February household purchases of beef increased in terms of spend and volume.

A survey by the analyst TNS for the MLC involving 25,000 respondents, reveals that the UK spend on beef increased by 5.8 per cent to £1.62 billion, while the volume purchased rose by 4.6 per cent to 310,359 tonnes. Consumption of beef is approaching one million tonnes a year, of which less than 80 per cent is home-produced. A considerable proportion of beef comes from the dairy herd, but here again the omens are less than bright. The census figures show that a decade ago there were 216,000 dairy cows in Scotland – as of last December that figure had shrunk to 190,000.

One solution, according to Haywood, is to make better use of purebred Holstein bull calves from the dairy. At present these calves, which will never produce quality beef, are either shot shortly after birth or exported to mainland Europe for veal production. Only a few are reared for beef in the UK.

Haywood said: "There is no point in anyone, retailer or packer, pretending that further declines in the UK's output can easily be countered by imports. Those coming in from outside the EU are rapidly drying up and more and more of the Republic of Ireland's output will be needed to fill the huge supply gap that is developing across continental Europe."