The Rodwells have been producing milk on their Boyanup property for the past 70 years and maintain a positive long-term outlook for the dairy sector in the South West.
But second-generation producer Victor Rodwell said - like many local dairy operators - his family's business was under the tightest financial pressure it had experienced for at least the past five years.
He said while on-farm milk prices had increased slightly by 1-1.5 cents a litre for 2012-13, grain price rises would soak up 3.5c/L in costs this spring and power charges for irrigation were anticipated to rise 15 per cent this year.
"This equates to higher costs of about 5-6c/L for the year ahead and increased returns of 1-1.5c/L," he said.
"That is a big challenge for us to manage on-farm because whatever we do, our costs seem to be rising faster than we can adapt.
"And if we get a soft finish to the season, it will exacerbate the situation."
Victor said declining milk production levels due to low prices and poor seasonal conditions were concerning South West dairy producers.
He said some processors were already bringing in milk from other states and this was likely to increase from December, as demand continued to outstrip local supply.
The Rodwells are suppliers to Brownes Dairy, which has offered them supply contracts for two to three years and a contracted price for one year.
"But we are thinking if processors want our milk and a commitment for that length of time, then they will have to pay for it," Victor said.
He said the major retailers had put a ceiling on milk prices that could not be pushed through and this was directly affecting processing and production levels.
Victor said milk production in WA was unlikely to rise while prices were low and farmers recovered from one of the driest winters for many years, which could reduce silage yields and impact on the numbers of cows that could be milked this summer.
Victor said he was optimistic about the long-term fundamentals of the dairy industry and would continue to concentrate on improving his business performance and profit-drivers and making the budget stack up.
"It is likely budgets will continue to be tight, but it does make you a better business planner," he said.
"We need to sort out milk prices from the top end at retail.
"Milk is a value-added product and should be treated as such if consumers want to continue being able to buy a fresh product that is grown in their home state.
"If processors can't get local supplies, there will be more milk coming in from the east and that is very disappointing.
"There are so many good WA dairy producers who could do a lot more with their businesses if the returns for milk were available."