Western Australia is facing an exodus of dairy farmers less than a year after the widely-celebrated end of $1-a-litre milk.

Key points: Dairy farmers in WA say they have lost trust in processors

Dairy farmers in WA say they have lost trust in processors Producers are struggling to break even despite the abolition of $1-a-litre milk

Producers are struggling to break even despite the abolition of $1-a-litre milk An industry group says the price increase has not been passed on

Farmers say rising production costs and "unsustainable" farmgate prices are forcing more of them to sell their cows to butchers and exporters.

The ABC has spoken to industry analysts and stock agents who say a dozen herds of dairy cows are awaiting sale in Western Australia, which could represent up to 10 per cent of the state's herd.

The ABC has also spoken directly to half a dozen farmers who say they want to leave the industry.

David Payne has decided to stop milking after 25 years at Scott River in the dairy heartland of WA's South West, saying he had few options but to send a portion of his herd to the abattoir.

"I don't want to be on the farm so my father and another mate of mine can load them on the truck, because I don't want to see them go," he said.

"It's obviously very upsetting, but there comes a time when you feel like you're banging your head against a wall and have to move on to greener grasses."

Mr Payne is not alone as the industry's long-running issues come to a head, with many farmers seeing little hope in sight after the abolition of $1-a-litre milk failed to make a difference.

One major processor has lifted the price of its milk for its customers, but suppliers say none of it is reaching the farmgate.

David Payne farms has milked his herd in WA for the last quarter of a century, but he said a passion for his cows was no longer enough to pay the bills. ( ABC Rural: Jon Daly )

'Selling our future'

Consumers are paying about 20 cents more for a litre of homebrand milk at the supermarket checkout, but WA Farmers Federation's (WAFarmers) dairy section president Michael Partridge said as little as 1-3 cents of that had been passed on to farmers through the supply chain.

WAFarmers dairy council president Michael Partridge is urging processors to lift farmgate prices by 5 cents per litre of milk. ( ABC Rural: Jon Daly )

Both Coles and Woolworths said the matter was best directed to milk processors, who negotiate farmgate prices with dairy farmers.

In addition to a drought levy, a Woolworths spokesperson said the supermarket had also agreed to "significant wholesale cost increases" from WA processors across the dairy cabinet.

The amount of money WA farmers were paid for their milk last year averaged at 50.2 cents per litre, a fraction below the five-year average of 50.4 cents per litre.

Meanwhile, production costs have risen by just less than 10 cents per litre in recent years because the drought elsewhere in Australia has lifted WA grain and hay prices significantly.

Mr Partridge said the average milk price was on par or failing to meet the cost of production for a lot of dairy farmers.

Michael Angi said his farmgate price was on par or less than production costs. ( ABC Rural: Jon Daly )

He said they were stuck in the middle of price squeeze driven by major processors and the retail duopoly of Coles and Woolworths.

"I've spoken to a number of farm advisors recently and they've got good clients that are borrowing money to feed cows," Mr Partridge said.

Second-generation dairy farmer Michael Angi is one of less than 150 milk suppliers left in WA.

"You just tighten your belt where ever you can, but we're running out of holes in the belt," he said.

Mr Angi has maintained cashflow by live exporting dozens of his young heifers, which are future milking cows, to China.

"We're selling our future," he said.

"I had the opportunity, and I'd like to give it to my kids — it's a great lifestyle, but it gets to the point where you've got to put food on the table."

Farm gate disparity

Australian Dairy Farmers (ADF) president, Terry Richardson, said WA farmers were being paid up to 20 cents per litre less than farmers in parts of New South Wales and Queensland, who currently receive an average farmgate price of 64 cents and 70 cents, respectively.

"The difference is that the WA market doesn't have the flexibility like other dairy regions," Mr Richardson said.

WA's dairy industry lacks a significant dairy manufacturing sector and has just three major, foreign-owned processors in Brownes, Lion Drink & Dairy, and Harvey Fresh, which rely heavily on major supermarkets.

WA-based industry analyst Andrew Weinert said that market dynamic subdued farmgate prices.

"The dairy farmer is a weak seller with few choices, the processors are a strong buyer with many suppliers," he said.

"But the processors are also a weak seller when dealing with the major retailers and food services industry."

David and Carol Payne said they'd miss dairy farming, but they've grown tired of "smoke and mirrors" when dealing with processors. ( ABC Rural: Jon Daly )

'No trust'

WAFarmers has written to WA's major processors to urge them to provide a price increase of 5 cents per litre of milk, or risk pushing more farmers out of the industry.

The ABC asked each processor if they planned to meet that request — none provided a direct response.

Lion Dairy & Drinks, which is now owned by China Mengniu Dairy Company, said market conditions varied across Australia's dairy regions, and this influenced farmgate milk prices.

"An example of this is the ongoing drought and increasing cost of feed in the eastern states that has influenced farmgate prices in those areas recently," Lion's national farms services manager, Paul Rees, said in a statement. "However, Western Australia has not been in drought during this time. "Our strong farmgate price in Western Australia has been market leading for some time."

Multinational French company, Lactalis, which owns Harvey Fresh, declined to comment.

Brownes, owned by Chinese dairy giant Shanghai Ground Food Tech, did not respond to the ABC's request for comment.

The ABC has obtained a letter sent from Brownes which notified customers of a 4.9 per cent increase of the price of its white and flavoured milk, effective from November 2019.

"With further increases in farmgate prices imperative to protect the sustainability for the future of the dairy industry, we're having to act at the farmgate to mitigate further production falls to the extent we can to ensure our suppliers remain viable during these difficult times," Brownes managing director Tony Girgis wrote.

Mr Payne, a Brownes supplier, said he had not seen any recent increase his milk price.

"There just seems to be a lot of smoke and mirrors, because they tell you one thing and do another," he said.

"So I have no trust in the processors."

The WA's Government said it was supporting dairy farmers by funding research and development and encouraging collective bargaining. ( ABC Rural: Jon Daly )

A way forward

WA Agriculture Minister Alannah MacTiernan said the State Government was supporting farmers by funding Western Dairy and its efforts to reduce production costs.

"There are people out whose cost of production is 10-20 per cent less than other producers, and it doesn't depend on scale or whether you're irrigated or not," she said.

Ms MacTiernan said it was also time for dairy farmers to come together and collectively bargain with processors or form a cooperative and get a better deal.

Mr Partridge said collective bargaining was not the answer and pointed to failures of the past, such as the collapse of WA's dairy cooperative, Challenge Australia Dairy in 2011.

He thinks the State Government should do more.

"Call out the buck passing between retailers and processors and create a forum where everyone can get together and speak about the situation, and look at alternatives and structural changes," Mr Partridge said.

ADF's Mr Richardson is urging all parties to come together to find a "market-based solution".