Dairy farmers in the Australian state of Queensland claim the country's retail milk value chain has been devalued by A$77m in 2010/2011 compared to the previous year due to supermarkets' house-brand milk being sold at low prices.

The Queensland Dairyfarmers Organisation (QDO) has lodged its findings to the current Australian Senate inquiry into milk prices. It claims that dairy farmers are being "directly impacted by the Coles-led A$1 per litre milk discounting".

QDO President Brian Tessmann described the impact of what the food industry has dubbed the 'supermarket milk war' as "catastrophic".

Tessmann said: "At the farm gate, in the long term, the result is expected to decrease prices between four and 20%, with the impact to be the worst for farmers supplying fresh drinking milk, as is the case in Queensland, where farmers don't have other market options to sell their milk into. In Queensland, if processors are forced to start discounting their own brands, which has already started to occur, the impact to processor margins could be as high as A$36m."

He added: "The dairy industry is able to put forward specific and detailed examples of the impact on-farm – which is in utter contrast to Coles' ongoing claims that 'there would be no impact on farmers'. To date, one group of 185 dairy farmers in Queensland, which supply the processor Parmalat, have collectively lost an estimated A$768,000 to the end of July, directly due to the discount milk war. This impact could grow to more than A$1.5m over twelve months if this discounting continues.

"A second group of farmers suppling processor Lion had a slight increase in farm gate price in their new contracts. But the small increase of 1-2% is below inflation and input cost rises, and follows a significant farm gate price cut last year of between 15 and 20%."

The QDO has lodged its 'supplementary submission' to the Senate Economics References Committee, ahead of the inquiry’s reporting deadline at the end of September.