Australian farmers' union, the United Dairyfarmers of Victoria (UDV), has voiced concerns over falling farm-gate milk prices after major Australian dairy processors warned that there would be a reduction in the prices paid for milk.

Dairy processors are cutting milk prices in response to the deterioration of world dairy market prices, which have dipped as a result of the global financial crisis.

According to Australian reports, Fonterra Australia sent letters to 1,500 of its suppliers last week stating the company had withdrawn its November step-up payment of 7c/kg butterfat and 17c/kg protein.

"Since writing to you in early November, we have seen a further deterioration in trading conditions," Fonterra MD Bruce Donnison reportedly wrote.

"Commodity prices continue to decline and this has been exacerbated in recent weeks by a rapidly deteriorating financial situation around the world; a deterioration which has far exceeded even our most pessimistic expectations."

Meanwhile, in a pre-Christmas announcement, Murray Goulburn said that it would reduce the amount it pays for milk by 13% from February.

"Dairy farmers are seriously concerned by the announcement and the impact that it will have on the dairy industry," UDV president Doug Chant said.

While the cuts could cause serious problems for the Australian dairy industry, Chant called on banks and financial institutions to support farmers during what he characterised as a temporary blip.

"This is a time for banks and financial institutions to be supportive of their borrowers," he said.

"The dairy industry has a long record of productivity growth and success and will continue to have a bright future. With a trend pointing to a continued reduction in farm input costs in the New Year, dairy farmers do still have reasons to be confident about the future of the dairy industry in the short term," Chant commented.

Fonterra is due to issue a decision on milk price payments on 27 January.