Australia's dairy farmers are leaving the industry in droves as drought and sky-high prices for water take their toll.

Key points: An estimated 400 dairy farmers have left the Murray Valley region in the past year

An estimated 400 dairy farmers have left the Murray Valley region in the past year This is the second consecutive year NSW irrigators cannot legally access water from the Murray River

This is the second consecutive year NSW irrigators cannot legally access water from the Murray River Farming communities are demanding major reform to water management by authorities

The Murray Valley region, stretching from northern Victoria to southern New South Wales, is one of the regions which has been hit the hardest.

An estimated 400 farmers have left there in the past year, milk production has halved to 1 billion litres, and saleyards are flooded with unwanted, surplus dairy cows — the less productive ones are destined for the meatworks.

"Truckloads and truckloads — hundreds a week — [are] getting killed out of the area," stock and station agent Nathan Everingham said.

"These are cows that have had 50 years of [artificial insemination] breeding, just all getting their heads cut off."

The Echuca Regional Livestock Exchange has been flooded with surplus dairy cows. ( ABC Landline: Tim Lee )

Family farms fight for water

In Finley, New South Wales, lack of fodder is a serious problem.

"We can't milk cows without fodder; we can't have fodder without water to grow it," dairy farmer Lachlan Marshall said.

The lack of spring rain has seen pasture and crops wither, and cruelly, despite the Murray River that runs through the valley being swollen with environmental flows released from storages upstream, it's out of reach for farmers.

It's the second year in a row New South Wales irrigators cannot legally access any of its water.

Farming communities along the river say speculators and corporate farmers have been allowed to buy vast volumes of water at the expense of family farms.

They're demanding major reform to the way state and federal authorities manage water resources.

The Marshall family opted for a dry-lot dairy, feeding their 900 cows a mix of fodder from harvested crops to conserve valuable water.

And it certainly is that. The short supply of water means it's currently selling for up to $800 a megalitre.

The Marshall family are in their second year of a zero-per-cent water allocation. ( ABC Landline: Tim Lee )

Worse than the millennium drought

Despite surging export demand for products such as yoghurt and infant formula, Australia's dairy industry continues to shrink.

Even with milk at historically high prices due to its scarcity, that's beyond the reach of irrigators growing feed for dairy cows.

"When you've got input costs that have increased 250 per cent for grain, 25 per cent for fodder, then of course water in those irrigated regions, it's very difficult to make a margin, even with a pretty good milk price," dairy analyst Joanne Bills said.

Bart Doohan and sons Jake, 15, and Mitchell, 13. ( ABC Landline: Tim Lee )

Ms Bills believes the impact on the dairy industry is even worse than that of the millennium drought, and predicts prices for irrigation water will stay high.

"There was also a bit of an exodus [then] but probably not as much as we're seeing right now because I think farmers in the region are feeling like this is a permanent change," she said.

The Doohan family at Finley stopped milking in March and sold their cows.

Their modern dairy stands idle and their farm is up for sale, but there's no interest from other dairy farmers.

"There's no chance it'll be sold to a dairy farmer," Bart Doohan said.

"All inquiries so far have been for beef and cropping blokes."

The Doohans want to continue dairying, but are yet to decide where.

Tracie Doohan says she has lost all faith in political leaders to protect farmers during adverse seasons.

"We're good at dealing with situations, but this has taken the apple out of our mouths. [It's] beyond our control," she said.

The demise of their dairy farm has taken a heavy toll on Hayley and Tracie Doohan. ( ABC Landline: Tim Lee )

Her 17-year-old daughter, Hayley, says it's taken her months to be able to talk about her family's misfortunes without choking on tears.

"It's hard seeing everything change," she said.

"[It's] not just on our property, but in the local area.

"You see families starting to feel the pressure of what's happening, and it affects your whole community."

Watch this story on ABC TV's Landline this Sunday at 12:30pm or on iView.