Dollar-a-litre milk may seem cheap, but there is another product on the supermarket shelf that returns even less money to a greater number of Australian dairy farmers.

Key points: Cheese sold at $6/kg can take up to 10 litres of milk to make, equating to as little 60 cents per litre retail value

Cheese sold at $6/kg can take up to 10 litres of milk to make, equating to as little 60 cents per litre retail value More than a third of Australia's 8.5-billion-litre annual milk production goes into cheese production

More than a third of Australia's 8.5-billion-litre annual milk production goes into cheese production This is far more than the 700 million litres sold as dollar-per-litre milk

The culprit is cheap cheese.

We have an enduring love for it, but Australians are paying less for it on a cents-per-litre basis than they do for milk.

"When you think about 10 litres of milk going into a kilogram of cheese and a block of cheese going for $6 [at the supermarket] — that's 60 cents a litre," Bega Cheese CEO Paul van Heerwaarden said.

That is dangerously close to what farmers are getting paid for their milk, even before the costs of processing it and trucking to the supermarket shelf are added on, and it is turning into a big problem for the local dairy industry.

More milk made into cheese than sold as milk

This year, Australian dairy farmers will produce about 8.5 billion litres of milk.

Of that, some 700 million litres of that milk will be sold for $1 per litre in supermarkets, or in Woolworths' case, $1.10 per litre.

It is a drop in the ocean compared to the milk that will go into cheap cheese.

Cheap cheese blocks on sale at supermarkets are only one part of the issue. ( ABC Rural: Warwick Long )

More than a third of the total is made into cheese, a large proportion of which is sold in Australian supermarkets at discounted rates.

Australian farmers are currently getting an average of 46.5c per litre for their milk and a majority are saying it is costing them more to produce milk than what they are being paid for it.

The cheapest cheese is currently selling in supermarkets for about $6.69 per kilogram, with major retailers sometimes discounting it as low as $6.

That is still equivalent to 60-67c per litre, far cheaper than the $1-per-litre for fresh milk.

Companies like Bega Cheese think this needs to change, and that the industry needs to educate both consumers and sellers.

"There is a big need for us to properly have a conversation with retailers and drive some more value," Mr van Heerwaarden told farmers at the Australian Dairy Conference.

Victorian dairy farmer Daryl Hoey said politicians and supermarkets had argued about the price of milk while much bigger issues had been ignored.

"I don't think dollar-a-litre milk has any impact on my business," Mr Hoey said.

"Governments want low-cost food because that keeps the CPI [consumer price index] down, which helps them get re-elected.

"If there was a jump in [the] food price tomorrow to reflect the true cost of what it costs people to produce food, governments would get thrown out of office and they don't want that."

Hospitality industry contributes too

Australia is one of the world's largest importers and exporters of cheese, producing some 377,000 tonnes of cheese per year.

Australian cheese is not wholly reliant on supermarkets to move product, but they are not helping. ( ABC Rural: Warwick Long )

But the food service industry also likes to import cheap alternatives, with fast food chains also making things difficult for farmers.

Last year, Australian supermarkets sold 151,000 tonnes of local and imported cheese.

But this figure does not include cheese that is sold through the food service industry to hospitality, hospitals, and other businesses like pizza chains.

Pizza giant Dominos imports all its mozzarella cheese — up to 7,000 tonnes per year — from the San Joaquin Valley in California.

Thirty-five per cent of cheese sold at supermarkets is private label or cheap cheese.

Some farmers say that devalues their produce and that the businesses do not care about their welfare.

"No, I have no confidence that supermarkets care about farmers," Mr Hoey said.

"They are only concerned about their bottom line and cheap product for their customers."

International buyers love our cheese more than we do

Keep in mind too that Australian farmers export more cheese than can be eaten or sold here.

Dairy farmer Daryl Hoey believes cheap cheese is hurting his industry more than dollar-per-litre milk. ( ABC, file photo )

According to Dairy Australia, 170,000 tonnes of cheese left our shores last year, with Japan by far the largest buyer, followed by China.

So, unlike the situation for fresh milk, Australian cheese is not wholly reliant on supermarkets to move product.

But it is not helping.

The difficulty is that selling cheese at such a cheap price in the supermarket puts a ceiling on the price farmers can achieve by supplying the domestic market.

Daryl Hoey said it was forcing more farmers to leave the industry.

"Australia is a country that expects to have a high standard of living," he said.

"We expect to have a first-class education system, a first-class hospital system, a first-class system in a whole lot of other areas.

"But by supporting home-brand products and cheap cheese you're forcing another group of people to struggle to have those same ideals as a first-class country."