A dairy farmer from northern New South Wales is so disgusted with the response from Coles to Woolworths lifting its milk price, that he is breaking his contract with his processor, Norco.

The Lismore-based dairy cooperative has the contract with Coles to supply milk for its home-brand milk products in the northern market, with Saputo holding the contract for the southern region.

Coles will not commit to ending its $1-a-litre milk and said that it does not want to disadvantage Australian consumers facing cost of living pressures.

"Everyone's making a loss and here they are just trying to make a commercial gain against their major competitor, it's pathetic," Paul Weir said

Norco has a contract with Coles to supply the supermarket giant with milk for its home-brand milk products. ( ABC Rural: Brett Worthington )

The fourth-generation Tuncester dairy farmer supplies 2.5 million litres of milk a year to Norco putting him in the top 10 per cent of the cooperative's suppliers.

"Full credit to Woolworths for doing it, but words can't describe how angry and disappointed we are with Coles' stand," he said.

"We're in one of the worst droughts in history, milk's dropping down to one of the lowest records in a long time, and everyone around here is doing it tough, feed costs have gone through the roof.

"The fundamental problem is is that it's well under the cost of production, and if this industry is going to be sustainable we need a price rise across the whole dairy cabinet — milk, cheese, yoghurts, butter, the whole lot.

"The Coles' discounting of it is sending the whole industry to the wall."

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Mr Weir has emailed Norco seeking an early release from his contract unless Coles changes its position on milk prices.

"I've got four boys and we'd love to keep it going but unless the price of milk goes up, unless Coles gets their act together … " he said.

"I actually want to see them take a lead and not only match Woolworths but right the wrong but take it up 15 to 20 cents."

Coles said it will support farmers by collecting donations at its registers from Monday February 25 and will match these dollar-for-dollar.

But Paul Weir said his family just do not want to supply the supermarket giant any longer.

"They just want to treat us like paupers, like beggars — but sorry we're too proud of what we do to actually take out handouts," he said.

"Their business values and mine just don't agree, I choose not to do business with people like that and I don't want any of my milk going through a Coles for them to make profit out of it while I'm sitting here making a loss on it.

"I would much prefer to give my milk away in front of a Coles shop then actually let Coles sell it as a loss just for them to profiteer on it."

Norco supplier Paul Weir says Coles needs to lift the price of milk so that dairy producers receive more at the farm gate. ( ABC Rural: Kim Honan )

Norco boss sends clear message to Coles on milk prices

Norco's chairman and acting CEO Greg McNamara said he had yet to speak to Paul Weir about his request to break his contract but would give him a call to "talk it through".

He did however use the Australian Dairy Conference in Canberra yesterday to send a message to retailers on the need to lift milk prices.

Mr McNamara was a panellist on the processor panel 'What keeps the top dairy processing chiefs up at night?' along with the key executives from Fonterra, Bega and Saputo.

"I think the single biggest issue the industry faces from my perspective when we talk about what some retailers have done in a levy and asking people to put donations into tins, just devalues everything we as farmers do," he said.

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"We do not want a generation of welfare recipients, we want a generation of farmers that are business savvy that spend their money in the right spots, and we've just got to help the retailers come to that conclusion."

Mr McNamara also told the delegates he believed the Australian Competition and Consumer Commission's findings from its dairy inquiry were wrong.

"Fundamentally the pricing mechanism — how we discuss with retailers and set pricing, their outcome in my opinion was flawed and I think that should be reviewed," he said.

Earlier this month Mr McNamara, who farms at Goolmangar near Lismore, told the ABC that he was losing between $500–$600 a day on his farm.

"That's a lot of money to lose when you know, like everybody else, that you're running out of water, and your dams are low and you're not sure when the rains are going to come, it's very stressful," he said.

"But we've got to be resilient, we've got to get back up, Australian farmers are very good at that, but that comes at a cost."

At the time Mr McNamara indicated that the co-operative was considering stopping supply of product to retailers including Coles.

"The situation is very critical and we are taking steps to drop customers off our list now that actually aren't prepared to pay the right price for milk, so that will play out over time," he said.

In 2013 Coles awarded Norco another five-year contract for the co-operative to supply it with milk for its home-brand products with that contract to commence in July 2014.

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"From time to time we've gone back to them and actually tried to renegotiate prices around that — so we did that in September, November and December — and they come forward and that so that was good from their perspective," Mr McNamara said.

"But we now think the situation has deteriorated even further and the ability for farmers to come back from this current drought is going to be quite significant."

Norco's annual milk volume is expected to drop from 222 million litres of milk to 200 millions this year.

"Depending on how many farmers leave the industry, it could actually drop significantly below that," he said.

Paul Weir milks up to 350 cows on his dairy farm at Tuncester near Lismore supplying 2.5 million litres of milk a year to Norco. ( ABC Rural: Kim Honan )

Artisan cheese saves dairy farmers supplying Norco

Debra and Jim Allard milk Jersey cows at their Burringbar farm in the Tweed Valley, but it is not just for bottled milk.

The couple send some of the milk to Norco for processing, and they keep a portion to make a range of artisan cheeses.

The couple are only fairly new to the industry, just three years, but in that time they have experienced major challenges with severe flooding and drought.

Debra and Jim Allard milk Jersey cows on their Burringbar farm to supply dairy co-operative Norco and to make a range of artisan cheeses. ( ABC Rural: Kim Honan )

There has been a mixed reaction across the industry to Woolworths increasing its price, and Ms Allard certainly has concerns.

"I'm more worried about Woolworths lifting its price to only 10 cents, is that going to be stagnant then for the next five to 10 years? Because it really isn't enough," she said.

"As everyone's saying it's a start, but it's so minute to what we really need."

Ms Allard said an increase of 25 cents per litre would be "lovely" and would lift the industry.

"Nothing's been fixed for a long time, nothing's been bought for a long time and so an injection of a nice decent fair price will lift the game beautifully," she said.

"It might even encourage more people to come in and that's what's needed.

"It shouldn't be an election issue, it should just get done, just do it."

The award-winning cheesemaker is critical of the National Party, a political party the family has supported for generations.

Debra Allard produces a range of artisan cheeses from her Jersey cow milk at Burringbar in the Tweed Valley. ( Supplied: Debra Allard )

"How come they haven't helped us? I don't understand," she said.

"I'm in the little cheese factory making cheese and I don't understand how these people promise the world and nothing gets done."

Ms Allard said if it was not for the income from the cheese they could not afford to run the dairy.

"We would never have been able to pay the bills on the milk alone," she said.

Ms Allard wondered what is really behind Coles' decision to not lift the milk price.

"They talk about the poor needing to have $1 milk, well is it fair to make the farmer poor?" she asked.

"The farmer is working seven days a week, 12 to 14 to 16 hours a day, and Coles and Aldi are making the farmers poor.

"It's not fair that you work so hard and still come out on a basic minimum wage, surely that's not legal? And I'm just trying to work out if there is some kind of conspiracy theory — do they want us out?

"Do they want the dairy farmers out? Are we a noose around their necks that they've got some plan to buy powdered milk cheap from somewhere, mix it all up in a big shed and sell it off? There's your dollar milk."