PIP COURTNEY, PRESENTER: Deregulation, drought and dollar milk has changed dairying in Australia in recent years.

While production's declined in WA, Queensland, and South Australia, in the export-focused southern states, it's risen. And while Tasmania's led the pack, its industry body has issued a challenge to farmers to lift production by 40 per cent in the next five years.

If it can be achieved, it would add more than $300 million to the state's floundering economy.

Woolnorth in Tasmania's far northwest corner is Tasmania's biggest farm. The 16,800 hectare property abuts Cape Grim. The name is apt, as the Roaring Forties winds that beat in from the west are relentless. Add an annual rainfall of 1,080 millimetres, or just over a metre, and rain falling 187 days of the year: it's a tough place to farm.

Settled in 1825, Woolnorth's early wealth came from wool. When wool declined, the Van Diemen's Land Company which runs Woolnorth moved into beef. And 20 years ago, new owners from New Zealand bought VDL and embarked on a massive dairy conversion.

Now the biggest dairying operation in the country, it has 31,000 cows and 160 staff.

MIKE GUERIN, VDL: We have 25 dairy sheds at the moment, of which 13 are on Woolnorth and 12 are off Woolnorth. The on-Woolnorth dairy sheds run an autumn calving system, and the off-Woolnorth farms run a spring calving system. So we have somewhere a little over 6,100 hectares dedicated to dairying at the moment on Woolnorth and a little over 3,000 hectares and the 12 sheds off Woolnorth.

PIP COURTNEY: With the addition of dairy, there was still room for VDL to run a big beef herd. But now, it's embarking on a second huge dairy investment phase, leaving no room for the 6,500 Angus cattle. Their paddocks will soon be exclusively for dairy cows or feed for dairy cows.

Does it feel odd given that you've already got out of sheep and now you're getting out of beef, given the history of this property was built on those two animals?

MIKE GUERIN: It does feel odd. But it's all about change and growth and it's all about picking the best opportunity to contribute to the economic development of Tasmania and our community and indeed to the agricultural industry. And the fact is that the dairy farming business is a really good business to undertake in the northwest of Tasmania and we believe we'll make the best use of this land and this resource.

PIP COURTNEY: A former ANZ banker and Elders executive, Mike Guerin is the man charged with the massive and complex job of doubling Woolnorth's dairy operation.

The $180 million development plan is for 26 new dairies, 30,000 more cows and nearly 200 extra staff, taking annual milk production from 90 million to 180 million litres.

This is the first of the new dairies: 350 hectares, supporting 1,200 cows. And this is the second: 1,500 cows on 460 hectares and a 60-cow rotary dairy.

MIKE GUERIN: So six weeks ago this was a paddock. Nothing on it, no fill and it ran beef stock. So this is six weeks' worth of construction and it'll take us about another six weeks to finish and indeed we need to finish in six weeks because the cows are calving in six weeks.

PIP COURTNEY: The plan to double milk production sits perfectly with the Tasmanian dairy industry's ambitious new plan to increase the state's milk production by 40 per cent in the next three to five years.

MARK SMITH, DAIRY TAS: We'd like to see another 350 million litres. Now, that's a big ask, but I think unless we sort of give ourselves a stretch to aim for, well, we may not get to where we really want to get to.

PIP COURTNEY: Until last year, the state had three major dairy processors.

PAUL BENNETT, DAIRY FARMER: The biggest is Fonterra. That has two major milk factories in the state - a high-class cheddar-making plant at Wynyard and a world-class spray-drying facility at Spreyton. National Foods have one of the best specialty cheese-making sites in the country, which they're currently expanding down at Burnie to the tune of $130 million development. Kraft have bought or own the Cadbury's brand down here, so not many people realise that Cadbury's Chocolate is part of the dairy industry in Tasmania too.

PIP COURTNEY: The fourth player is Tasmanian Dairy Products at Smithton. Its new $75 million milk powder factory opened this year. A joint venture between Australian dairy giant Murray Goulburn and Mitsubishi Asia, TDP, like the other three companies, has an export focus.

Dairy farmer and Dairy Tas board member Paul Bennett says TDP's arrival was welcome.

PAUL BENNETT: This is the first year that I've been able to choose who I as a dairy farmer in my 25-year farming career - who I supply, and we'd like that choice to continue.

PIP COURTNEY: With TDP on the scene, none of the four big processors was operating at full capacity. Their need for more milk prompted Dairy Tas to draw up the Filling the Factories plan.

MARK SMITH, DAIRY TAS: We saw the potential looming that if we didn't get this growth happening in the next three to seven years to gain the extra 40-odd per cent of milk to handle the extra stainless steel capacity being built, we may end up with a scenario of a milk company closing down and farmers losing choice in who they can supply their milk to so we go back to a situation almost of a captive market and a ceiling on our milk production. So it's all about trying to encourage more investment in the industry to grow milk production so that we keep up with the investment that's happening in processing capacity.

PAUL BENNETT: It's a bigger project as what the pulp mill is for Tasmania. This is growing an existing industry where Tasmania has a competitive advantage on a world scale. Statistics show us that we're the second most efficient dairy farmers in the world. Argentina's the only country that's got us. We've got the largest herd size and we are very efficient. All we need is a fair price for our product and the opportunity from the Government to have a go.

PIP COURTNEY: The call to expand has come at a difficult time. Milk prices are low, electricity bills have risen 20 per cent and record summer temperatures sent feed bills soaring.

Despite 20 per cent of the state's farmers experiencing financial difficulties, Mike Guerin believes farmers can hit the 40 per cent target.

MIKE GUERIN: I don't think it's impossible. I think it's exciting. I think it's challenging. These are the sort of bold moves you need to make, thinking 20 years ahead and then working back in terms of your investments. I applaud the dairy factories for the investments they've made. Us as farmers need to respond to that and produce more milk and the challenge is how we do that.

PIP COURTNEY: VDL has a growth plan, but the catch is it can't build 26 new dairies on its own. It needs an equity partner with $180 million.

MIKE GUERIN: We're at the final stages of negotiating the structure of the deal and thinking about how it works. We're very happy with the counter-parties and we hope very soon to be in a position to conclude that activity.

PIP COURTNEY: When China's biggest investment fund, the government-owned China Investment Corporation, showed interest, Tasmania's Premier Lara Giddings, who met CIC executives in Beijing last year, was thrilled.

LARA GIDDINGS, TASMANIAN PREMIER: We'd very much welcome their investment because what we know here in Tasmania is that we are resource rich, but we are capital poor. So we do need outside investment to help grow local jobs.

PIP COURTNEY: This week it was reported VDL is ready to sell out completely with CIC set to buy 49 per cent and global dairy giant, New Zealand-based Fonterra, 51 per cent.

Before news hit of the total sale, Mike Guerin said a foreign sale didn't worry him.

Would you hope that there wouldn't be some Cubbie-style furore if it was an overseas country?

MIKE GUERIN: We would hope that having abided by all the laws of the land, gone through all the appropriate authorities and considered all those issues, that when we announce the outcome of this equity raising, the local community and the industry will support that, because what it will signal is somebody who's prepared to invest in and back the growth of dairy in Tasmania, and in our case, the Van Diemen's Land Company.

PIP COURTNEY: VDL has close ties with Fonterra; it supplies milk to it.

MIKE GUERIN: At the moment, we're well looked after by Fonterra. They're very excited about our growth and they have confirmed to us that they will be able to take and look forward to taking all this extra milk.

PIP COURTNEY: The long delay in finding an equity partner is affecting VDL's expansion plans. It needs the money to continue what it's begun.

Dairy construction planned for the summer has been suspended, but at the breeding unit, it's business as usual. This corner of the property is where many of the 30,000 extra cows are being bred.

MIKE GUERIN: The Tasmanian dairy industry is looking to expand at the same time. So if we buy other cows out of the local market, we're not helping the industry around us. And that's important to us, that we support that industry, not hinder from it. But we'll be looking on the mainland for cows if we can, we'll be looking around here for surplus cows, but mainly, we'll be trying to grow our own.

PIP COURTNEY: And as to all those extra staff VDL will need, well Mike Guerin says dairying's a better job than many realise.

MIKE GUERIN: A lot of people in our company are on six figures. But more importantly, what I'd say to young people is a career in dairying is probably as good a career as you can get. And the idea that you start at two in the morning and finish at two o'clock the next morning's just not true.

PIP COURTNEY: Mike Gearin hopes some of the thousands of forestry workers who've lost their jobs will consider dairying.

As well as providing a new pool of labour, forestry may provide new dairying land as hundreds of hectares of plantations owned by failed timber company Gunns could be converted to pasture.

Management of blocks like this near Woolnorth's Circular Head properties has ceased. Ideal for dairying, it's just some of the dairy country that went out of production during the plantation frenzy of the late '90s.

In the state's north, the owner of this property, who wanted to remain anonymous, is scuttling 150 hectares of trees that have stopped earning him rent.

The land will be returned to pasture. The owner's yet to decide whether for beef or dairy cattle.

If the expansion push succeeds, dairies are expected to appear in non-traditional areas like Tasmania's Midlands. For many, it's unimaginable this region, known for fine wool and irrigated cropping, could sustain dairying.

What makes it possible, though, is the State Government's $300 million investment in new irrigation schemes. The Midlands scheme finally comes online next year.

Secure Water's given woolgrower and cropper Richard Gardiner the confidence to move into dairying.

RICHARD GARDNER, FARMER: We've signed up for 1,900 megalitres out of the Midlands water scheme. So a component of that's winter and summer supply. And about 1,200 megalitres we'll use for the dairy itself and then the rest of the water we'll use for our traditional poppy growing and probably grow some cereals for grain for the dairy as well.

PIP COURTNEY: And will you use the pivots to grow grass for the cows?

RICHARD GARDNER: Yes, absolutely, this dairy system will be all about irrigated grass. Our rainfall's only 465 millimetres, so we won't be growing a lot of green grass just on rainfall.

PIP COURTNEY: The dairy site's chosen and he's building up a 600-cow herd. And while his plan has bemused some locals, he believes more will follow.

RICHARD GARDNER: There's a couple of large tranches of water that are going to have to find a home in the next few years and I think growing grass for dairy cows is one of the obvious things - uses for it. So I don't think we'll be the last dairy built.

PIP COURTNEY: New entrants looking for tips on dairying profitably in the Midlands don't have to look far, for Australia's 2011 Dairy Farmer of the Year, Grant Archer, has two dairies in the region. He's the poster boy for making money from milk.

GRANT ARCHER, DAIRY FARMER: We made an 18 per cent return on one of our farms two years ago and we made a 15 per cent return on this farm last year, so I think those returns are good enough, but you've got to - the keys are having the right system and the right people and you definitely can be profitable.

PIP COURTNEY: Grant has an interest in five farms, including this one in the Northern Midlands he share-farms with Bill Chilvers. Bill's expertise is in cropping and prime lambs. He knew nothing about dairying before partnering with Grant.

Was it exciting watching the dairy go up and the lanes go in and the cows arrive?

BILL CHILVERS, FARMER: Yes, I've never spent so much money in my life and hopefully I won't again. It was a pretty exciting time.

PIP COURTNEY: And are people finding seeing dairy cows in the Northern Midlands a bit unusual?

GRANT ARCHER: I think so. It's traditionally a bit of a blue blood area I suppose, where it's been sheep and dairy was certainly thought of as a poor example of farming and not where you'd want to go. But I think with the results we've been achieving, I think it is creating a bit more interest, so I think there is quite a bit of potential for more dairying in this area.

PIP COURTNEY: Grant Archer says the main threat to the Filling the Factories target is labour - where to find 500 new workers.

GRANT ARCHER: We would actually be prepared to probably expand next year, but we're not confident we've got the people. So I think the people running the farms - I think if the economics stack up, the farm owners will be there and the investors will be there and obviously we've got the milk factories taking the milk.

So I think that those two things are in place. Cows - I think we can always get cows and there probably is a few less going to China and things now, so I think the cows won't be an issue. So I think the people are the biggest perhaps potential hurdle.

PIP COURTNEY: While excited by the expansion goal, he says it'll fail if processors don't step up and pay farmers more.

GRANT ARCHER: I think it probably can work. I think we've got to make sure first of all the farms are profitable. They won't change their enterprise unless they think they can make more money out of dairy farming. But it'll be exciting times for the industry and there'll be lots of opportunities. So I think we've got the natural resources, we've got the low cost of production. If you're going to dairy anywhere, I think Tassie is as good as anywhere in the world.

PIP COURTNEY: Wayne Tennants's one farmer who won't be expanding. Based at Tagari in the northwest, known as the best dairy land in Tasmania, if not the country, he says he's struggling.

WAYNE TENNANT, DAIRY FARMER: We're in an area in Tasmania that could double its production, possibly even triple it. But we need the right framework around to us do that and we've been let down. We've seen something like a 20 per cent increase in power prices just to run the dairy. Our power bill is about $3,500 a month that we've got to meet before we pay any wages, any other costs to run the farm. And that's just horrific. I mean, and the really scary part about this is where does it end?

PIP COURTNEY: A new irrigation scheme comes online next year. It should be good news for Wayne, but he can't afford the water.

WAYNE TENNANT: I've never seen a politician in five years, so, where are they? Why aren't they out on these farms finding out what things we're up against?

PIP COURTNEY: Paul Bennett says while Tasmania is ideal for dairying, farmers won't invest on the basis they might make money from the food boom in Asia one day.

PAUL BENNETT: Quite frankly, I think as farmers, we're sick of hearing about the food boom. I've been in the industry for some 25 years and there's always going to be a food boom and I'm going to make a fortune. I'm still waiting.

PIP COURTNEY: He shudders whenever the car industry receives millions in government assistance and wishes politicians realised dairying's potential to boost the economy.

PAUL BENNETT: If we wish to grow the milk supply in this state by 40 per cent, we're looking at $680 million of on-farm infrastructure. That soon adds up. If you're looking at 50 new dairies at an average cost of $2 million, the stock, the land and everything - it soon adds up.

PIP COURTNEY: There's been some help from both the State and Federal Government with both giving to the Filling the Factories fund. But so too has the processing sector and the money only amounts to $1.2 million.

PAUL BENNETT: We've already started with running some programs encouraging people to look at breeding more cows. We're already looking at how to train people and attract more people from other regions to come and maybe look at Tasmania. We need up to 100 new farms in this state and we'd like to encourage other people in other countries, whether it be New Zealand, South Africa or other areas like Queensland, New South Wales and Victoria that are perhaps doing it tough and not seeing a future in their industry there to at least have a look at Tasmania before you give up.

PIP COURTNEY: But within the dairy industry, there are voices querying the wisdom of the growth plan. East Coast dairy farmer and cheese maker Jon Healey worries it will trigger a boom and then a bust. He's also concerned irrigating the Midlands will cause environmental problems like salinity.

JON HEALEY, PYENGANA DAIRY COMPANY: Irrigating pasture for dairy cattle is one of the most least effective ways of utilising irrigation water and the megalitres of water that you need to create megajoules of grass for dairy cattle is a really inefficient way of using water. You're much better off to be growing crops and utilising water seasonally than they do with dairy farms.

PIP COURTNEY: Andy and Matt Jackman are water refugees from Victoria who moved to northwest Tasmania to escape drought. They saw the impact of decades of irrigation in Victoria and say development in Tasmania should be approached with caution.

ANDY JACKMAN, RED COW DAIRIES: We can do it well here in Tassie, we can be leaders in the industry, so let's do that correctly and with a mindset of growth that is not too intensified to the detriment of the environment. Salinity's an issue right through Australia, so we need to be able to be conscious of that and make really good decisions and learn from our past experiences.

PIP COURTNEY: Those behind the push for Tasmania to nearly double its milk output concede much has to go right for the target to be reached.

MARK SMITH, DAIRY TAS: It's not one - any one of those areas that's going to be the game changer. They've all got to work together, have some sort of - in tandem, in parallel or we won't achieve the sort of target that we're aiming to get to.

PAUL BENNETT: We don't want an industry that is a boom and bust, a typical bubble where everyone rushes in at the wrong time and goes broke. The industry at the moment is struggling and farmers are finding it tough, but there's still guys out there making money.

PIP COURTNEY: With Tasmania's unemployment the highest in the country at over eight per cent, the state desperately needs something to replace forestry.

PAUL BENNETT: That may be possible, it may be impossible; I don't know. But the board I represent sat down and we decided if we didn't have a go, and in five years' time this state woke up and one or two milk plants go into mothball or shift offshore, then what would we think?

Far better we have a go at trying to grow the industry, trying to grow the state and see what happens. Because it's not only important for the Australian - Tasmanian dairy farmers, it's exceptionally important for the Tasmanian economy which at the moment is really struggling and dairying is one of the few lights on the hill that may be able to help this state into an economic recovery.

PIP COURTNEY: And while scale is critical if the Tasmanian industry is to hit the 40 per cent target, innovation will also be key. In coming weeks, I'll introduce you to some of the state's most innovative dairy farmers. Stay tuned.