WA's biggest milk processors have defended their role in the dairy industry crisis, saying they have lifted farm gate prices in the past 12 months.
Brownes managing director Ben Purcell acknowledged that the retail price for milk was too low but said its hands were tied in a market dominated by Coles' $1-a-litre pricing policy, which he feared had become a matter of principle for the supermarket chain.
Dairy farmers renewed their protests over low farm gate prices on Australia Day, which marked the second anniversary of Coles introducing $1-a-litre milk. WAFarmers dairy section president Phil Depi- azzi said Coles was driving down prices for all milk and stripping value from the supply chain.
Brownes said it favoured a small rise in the retail price which could be returned to farmers.
"An extra 5Â¢ a litre would really take a lot of pressure off our farmers," Mr Purcell said.
Brownes increased farm gate prices by 5 per cent for 2012-13 (to an average of 43-44Â¢ a litre) and by 2Â¢ a litre this month until May to help cover increased production costs in the hotter months.
Harvey Fresh, which supplies Coles and is WA's second biggest processor behind Brownes, said it had increased prices by 4-5Â¢ a litre last year and was working on ways to provide further increases.
WAFarmers believes there is potential to increase production to tap into demand for milk in growing Asia economies if farm gate prices rise but at current levels they are struggling to break even. Milk production is falling (down by 24 million litres to 338 million in 2011-12) and WA imported 9 million litres from interstate last year.
China and Japan are Australia's most important dairy markets, accounting for almost a third of exports worth $2.3 billion a year.
NBA Asia desk director Grant Healy said last week that the market for Australian-produced infant milk formula in China was booming along with demand for products like cheese, butter and liquid milk.
Demand for Australian milk products could grow even more strongly after traces of an agricultural chemical were found in milk products from New Zealand.
Auckland-based Fonterra, the world's biggest dairy exporter, said the discovery of minimal levels of fertiliser additive dicyandiamide in some samples did not represent a health threat and that no products had been recalled.
Milk safety in China became a major issue in 2008, when locally made melamine-contaminated milk powder was linked to the death of at least six infants, causing the collapse of Fonterra's local partner Sanlu Group.