A Senate committee is set to look into the market power of leading dairy players in Australia to determine whether farmers are being short changed.

Concerns have been raised about whether Australian dairy farmers are getting a fair deal, with the issues coming to a head in Tasmania over the past couple of weeks amid allegations that National Foods are using their bargaining power in the state to force prices below fair value.

The inquiry, to be carried out by the Economic Reference Committee, has the support of the Greens, Labor and the Coalition.

Issues to be examined include the concentration of ownership of processing facilities, market share, and the role of the Trade Practices Act.

"…There's some specific evidence that has been out there on the airwaves that we'd be keen to explore under parliamentary privilege," Labor Senator Kerry O'Brien told the ABC.

Liberal Senator Richard Colbeck, who sponsored the move with fellow Tasmanian, Senator O'Brien, said the current prices were unsustainable.

"Dairy farmers are under enormous financial pressure due to massive and unsustainable cuts in milk prices," Senator Colbeck said, according to the Weekly Times. "Dairy farmers, as price takers, are at the mercy of a small number of large milk processing companies."

"Many farmers are now being forced to take prices which don't make up for the cost of producing the milk."

Milk prices were soaring until just after the middle of last year but quickly plummeted as demand fell. The price decline has levelled off and there are signs that prices could be on the way up again as the global economy recovers, but the lofty heights of last year appear a long time ago for Australia's dairy industry.

Results from the inquiry are expected in February.

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