Unprecedented changes are hitting the dairy industry in southern Australia, with a "supply chain revolution" underway that had snapped the traditional loyalty farmers had to processors.

Rabobank senior dairy analyst Michael Harvey said in a report released on Monday that the dairy industry had faced constant change since it was deregulated almost 20 years ago but recent developments had caused significant supply chain tension and sparked "transformative change".

The dairy industry is eyeballing major transformation. Credit:Ian Warden

These changes included the problems engulfing dairy cooperative Murray Goulburn – which was now being measured by potential buyers – a fall in national milk production, and "the reset in farmgate milk prices from mid-2016, to better align with global markets".

Milk production in southern Australia had fallen by 800 million litres over the past two seasons, the report said.