WA dairy farmers will be offered unprecedented bonuses to boost milk production by tens of millions of litres in a move that signals the start of a new era for the industry.
They will be paid a premium of almost 65 per cent above the average price per litre to increase their production from January to May when supplies in WA dry up.
Global dairy giant Parmalat revealed the price incentive to farmers at meetings in Harvey and Busselton yesterday.
The move came two months after Parmalat bought family-owned Harvey Fresh with a view to using excess processing capacity to target markets in China and South-East Asia.
It hopes to arrest an alarming fall in milk production in WA, which is down to levels of the early 1990s despite WA's growing population and the proximity to lucrative export markets.
Dairy Australia commercial research manager Norman Repacholi said it was the most significant incentive to boost supply in WA he could remember.
The price bonus for next year is a whopping 30Â¢ a litre above the average paid to farmers in an industry where rises of 1 cent or 2 cents are regarded as significant.
Harvey Fresh general manager Paul Lorimer said he hoped the offer led to more money for farmers, more dairy cattle, more milk and more exports.
"Parmalat has invested $120 million in the business and we see huge potential for it to grow, but we need supply to ensure that growth," he said.
Harvey Fresh processes about 130 million litres of milk a year and the three-year incentive scheme is expected to boost supply by up to 40 million litres.
Mr Lorimer said there was fierce competition between WA's three big processors - Harvey Fresh, Brownes and Lion - for limited supplies.
"We hope this new model will encourage total growth of the supply network," he said.
Farmers blame poor returns and the $1-a-litre pricing policy of supermarket giants for the fall in supply in WA, where production has fallen by 33 million litres over the past 24 months to about 329 million litres a year.
Benger dairy farmer Todd Norton said he would sit down and crunch the numbers on the incentive scheme but was already planning to boost production.
"Agriculture in general is looking very positive at the moment," he said.
"It looks like we are at the beginning of something, not at the end of it.
"For the first time manufacturers are taking the lead rather than coming to us and saying we need milk, you guys produce it and we might pay you if we get the markets.
"The markets seem to be there. It is a change in the dynamic."
It is understood Harvey Fresh will also increase its base farm gate price by 2 cents litre.
The incentive scheme will apply on a sliding scale for "new milk" produced from January to May with a bonus 30 cents next year, 25 cents in 2016 and 20 cents in 2017.