A group of Australian dairy farmers plans a series of rallies in a push for the federal Government to urgently establish an independent review of the country's dairy industry after Fonterra and other processors slashed farmgate milk prices.

The group, Farmer Power, said the "unacceptable retrospective reduction in milk price", which affects 75 per cent of farms in Victoria, threatens to push farmers off the land or further cull their herds.

"Dairy farmers are not going to survive if they're losing money," said group president Chris Gleeson. "The average farmer is forecast to lose A$15,000 ($16,170) this season and more next season. Without immediate action, the industry will continue its downward spiral."

Fonterra last week cut its forecast farmgate milk price to its Australian farmers for the current season to A$5 a kg of milk solids, down from an earlier forecast of A$5.60/kgMS, to better reflect the oversupply of milk weighing on global dairy prices.


It followed Australian dairy giant Murray Goulburn reducing its farmgate milk price to a range of A$4.75 to A$5/kgMS last month from a forecast A$5.60 as it struggles to meet profits forecast in the prospectus for its ASX partial float last year.

Murray Goulburn is offering farmers a support package that also protects its longer-term supply, by topping up payments to A$5.47/kgMS this financial year, to be recovered from supplier milk payments over the next three years.

Most of Fonterra's 1800 or so Australian suppliers are members of Bonlac Supply, which has a supply deal that requires the New Zealand-based dairy processor to match or better the Murray Goulburn price.

This meant its Australian suppliers were paid well above their Kiwi counterparts last season. The big difference between the two markets is that most of New Zealand's milk is exported and subject to global pricing while in Australia about 60 per cent supplies the domestic market.

Managing director for Oceania Judith Swales said the most important thing Fonterra could do for its farmers and the industry is to send the right price signals.

"We've said Australia is not immune to the global challenges, and we've been upfront all season cautioning our farmers to prepare for a lower milk price environment."

Fonterra chief executive Theo Spierings caused a stir last year when he said Australian dairy farmers were being paid too much for their milk.

The revised Australian milk price cuts the cost of goods sold for the loss-making Fonterra Australia by about A$48 million although that's subject to other factors such as volumes.

Fonterra has already reduced payments for its NZ suppliers to $3.90/kgMS for this season which is below the cost of production for most though the shareholder dividend is likely to be higher than usual at 45c to 55c per share.

Fonterra Australia's supply contract in its second-largest milk pool doesn't lock supply in. But Gleeson said the A60c/kgMS support loan it offered farmers, repayable from 2018, was conditional on their committing to supply it for the next three years without any price guarantee.

The existing contract agreement is in place until the 2019 season.

Fonterra has said it will continue to meet the minimum benchmark milk price but from next season farmers will also face deductions to recover repayments from its farmer support package, equating to A20c to A27c/kgMS for three years.

Farmer Power, which is separate from the main farmer industry groups Australian Dairy Farmers (ADF) and United Dairyfarmers Victoria, is planning a rally tomorrow at Terang in southwest Victoria which Gleeson expects will be well attended.

He said there's likely to be more held in other areas after that. About 600 farmers attended a similar rally three years ago which called for state and federal action to combat low milk prices and dry conditions.

An ADF spokesperson said there was no easy solution for the challenges the industry faced. Its focus was on the well-being of farmers, particularly for those in Victoria and Tasmania already struggling with dry conditions in the past year.

Neither ADF nor the Victorian lobby group has given its backing to Farmer Power's rally.