China and South-East Asia have emerged as potential saviours of the WA dairy industry as farmers latch on to lucrative deals linked to supplying the burgeoning markets.
The deals have resulted in a jump in payments to a select group of farmers under unprecedented long-term contracts that guarantee returns for the next five years.
Industry sources expect exports of UHT milk from WA to China and South-East Asia to increase by seven million litres in the next year.
They said WA dairy farmers were entering a new era as the battle between processors over limited supplies intensified and pushed up farm-gate prices.
Some farmers are already cashing in on the increased demand, with about 18 million litres of supply shifting to processor Harvey Fresh in recent weeks.
Harvey Fresh, which has invested heavily in UHT processing and has the only plant in WA, confirmed the shift in supply but refused to reveal details.
WAFarmers dairy section president Phil Depiazzi said any increase in overseas demand would put intense pressure on the $1-a-litre pricing policy of Coles and Woolworths, which farmers blame for crippling the industry.
Coles led the retail price plunge but admits its margins on home-brand milk are paper-thin.
WA has been in the grip of its biggest shortfall in milk production for decades with the three processors - Harvey Fresh, Brownes and Lion - battling for supply from the 160 farmers still standing.
Milk production fell by 24 million litres to 338 million litres in the 12 months to July and Lion has been forced to truck in millions of litres to supply Woolworths.
Lactanz Dairies, WA's biggest single milk producer, was put into receivership this month, prompting fears the industry was at risk unless farmers were paid more.
Agriculture Minister Ken Baston said he was aware of new markets for dairy products in Asia where health concerns over contaminated milk products have increased the focus on WA and other biosecure suppliers.
Chinese beverage billionaire Zong Quinghou visited the South West last year as he considered a $200 million investment in a milk-processing plant.