At a public hearing held last week to discuss competition and pricing in the Australian dairy industry, farmers generated discussion on challenges that they face and critical issues that needed to be addressed.

WA dairy farmers took a 20 per cent cut to their milk price last January, to about 41 cents a litre and continued to battle low prices throughout 2009.

The main issues discussed at the hearing, held by the Senate Economics References Committee, were the power of the big retailers and their advantage over the farmers, the discounts by local processors in liquid white milk and food security.

WA Farmers dairy section vice president Phil Depiazzi said it was important the retailers and processors take a long term view when setting prices for their farmers which would ensure an ongoing supply of dairy products in the future.

"Farmers make long term decisions and processors need to take this into consideration when setting prices," Mr Depiazzi said.

Mr Depiazzi, a dairy farmer in Dardanup, said the big issue was the market power the supermarkets have over everyone else.

"Processors need to maintain their margin, as do the retailers, but if everybody keeps squeezing, it will be the farmers that will suffer," Mr Depiazzi said.

"If farmers don't receive a fair price, supplies will be threatened in the future, and therefore food might have to be imported from places with less stringent food quality standards.

"In Tasmania, prices are below the cost of production which is forcing farmers out of the industry."

Mr Depiazzi said due to the global financial crisis, commodity prices had fallen sharply.

"We used to be getting 40pc of the retail price 10 years ago, now we're only getting 24pc," he said.

Mr Depiazzi said he doesn't know what will come out of the review, but said he keenly awaits the Senate committees report.