FARMERS in Victoria and NSW with Dairy Farmers Milk Co-operative volume contracts will be penalised if they supply above or below an allocated amount next season.
It is the first time the co-operative has imposed the penalties on suppliers.
NSW farmers told The Weekly Times the "last-minute information", which could result in heavy discounts on milk, could drive many out of business.
Irate farmers said they could not understand why DFMC had waited until now to notify them of the new supply contracts.
A major mid-NSW farmer, who did not wish to be named, told The Weekly Times the new contracts, which aimed to level off supply volumes throughout the year, could hurt farmers who used spring pasture flushes to produce high volumes at a lower cost.
"People are now being forced to make reactive decisions," she said.
"We do not understand why this information could not have been given to us nine months ago."
The dairy farmer said her business had been contracted at 88 per cent of last year's supply and she did not yet know how large the price penalties would be if she supplied above or below the allocated amount.
She said the penalties would apply at various levels, depending on the entire region's supply, making it even harder for farmers to plan ahead.
Cobram dairy farmer Jim McKeow gave his qualified support to the concept because "it gives farmers a signal about what that last litre of milk is worth and sometimes it may not be worth producing it".
But Mr McKeow said he was concerned that the allocated volumes could prevent businesses from expanding.
"In some ways it is heading back to a regulated market," Mr McKeow said.
He said the benefit or otherwise to farmers depended on the detail of the prices and arrangements, which wouldn't be known until further meetings with farmers and DFMC next month.
"But we've been with DFMC for 10 years now, and overall we're in front, so we are not about to cut off the hand (that feeds us)," he said.
DFMC chairman Ian Zandstra said the new two-tiered pricing system would be fair for all members.
He said DFMC members had been given plenty of notice that such a "supply management model" would be needed, but it was not announced in full until now because of the challenge of coming up with a good system.
Mr Zandstra said most regions would not have the second-tier pricing applied this autumn and winter, due to undersupply.
But he said it would be reviewed monthly and the amount of milk produced in each area considered.
