The WA dairy industry crisis has intensified with Parmalat owned processor Harvey Fresh confirming it will dump five of its farmer suppliers from January 2017.

In a letter of explanation to the farmers Harvey Fresh states a clause in the existing milk purchasing agreement says "either party may terminate this agreement by giving the other party six months' notice," the letter reads.

A statement from Harvey Fresh said "the decision to give notice to those suppliers is a direct result of the sustained global dairy oversupply and the loss of planned export sales."

It follows the recent decision by Brownes not to renew contracts with four of its suppliers at the end of September.

Kieran Chapman is a third-generation dairy farmer at Busselton and he is one of the five Harvey Fresh suppliers who have nowhere to deliver their milk come the new year.

"I was shocked, I still am."

Kieran Chapman milks just over 500 cows producing 5 million litres of milk a year and about 18 months ago invested $1.5 million building a new dairy.

"The hard thing about a dairy is once it's built it's only worth something if it's got cows walking through it getting milked twice a day. If we've got nowhere to send our milk there's no point in milking cows so that asset is pretty much worthless.

"I've just got to figure out what I can sell to try and pay the bank off," he said.

Mr Chapman said the future at this point was very uncertain.

"It's strange getting out of bed because you're like what's the point of this. Because in six months time it's not necessary.

"Do we start winding down now, do we start dropping cows off before there's a flood of cows on the market."

The hope of continuing to supply Harvey Fresh remains, but Mr Chapman is not convinced it is a realistic prospect.

"I'm not sure if this is just a way of driving the milk price down and the five farmers involved are the easiest targets at the moment. I guess it's a warning to other Harvey Fresh suppliers that when their contracts are due they're in for a surprise."

Mr Chapman said since Parmalat purchased Harvey Fresh in 2014 it had been driving milk growth,

"They've wanted to grow their production significantly, possibly even double and they've been trying to get farmers to grow their milk, not drop their milk.

He said he did not understand how that could happen in the space of a day a week.

"One minute they want one thing the next minute they don't.

"I don't know if the people making these decisions understand that we can't just turn milk on and off.

"If signals like this are sent out to industry the milk supply will drop off rapidly and if they want milk again it's going to take years and years for that to change, you can't just make it happen over night," Mr Chapman said.

Planning an exit strategy

The development follows the announcement by processor Brownes in May that the contracts of four of its suppliers would be not be extended past September.

One of those four, Dale Hanks, said he had been unable to secure, or even attract interest from any of the state's other processors.

Mr Hanks had been producing just under 3 million litres a year from his 360 cows in Harvey.

"We've started working on our exit strategy out of the industry," Mr Hanks said.

"Exactly what that plan is we're still not sure, but we're looking at selling spring carving cows, culling the bottom end of the herd or a couple other options."

Mr Hanks said the issue was further compounded by a "looming threat" of the September deadline and the milk his cows were still producing.

"We're dammed either way," Mr Hanks said.

"I'm either dammed by the Environmental Protection agency for dumping milk down the drain or I'm dammed by the RSPCA for not milking my cows. Either way we're in a horrible situation that we're having trouble dealing with."