THE Australian consumer watchdog has issued a warning to dairy processors not to mislead farmers about milk prices.

The ACCC caution comes in response to reports of processors blaming their private-label (sometimes referred to as brand label) milk contracts with supermarkets for the low prices offered to farmers.

In October 2016, the Treasurer launched an inquiry into the competitiveness of prices, trading practices and the supply chain in the Australian dairy industry.

The ACCC released its final report on in April this year. A key finding, based on detailed evidence provided by both supermarkets and processors, was that almost all contracts for the supply of private label milk allow processors to pass-through movements in farm gate prices to supermarkets.

In addition, farmers are paid the same price irrespective of whether their milk goes into private label or branded products.

ACCC chairmain Rod Sims called for increased transparency and said dairy processors needed to be honest with farmers.

"We have written to a number of processors warning them not to mislead farmers by blaming private label milk contracts for the prices offered for milk at the farmgate,” he said.

"We're concerned this is misleading as the power lies with processors to raise the farmgate price paid to farmers, and then pass these higher farmgate prices on to supermarkets.

"Almost all contracts between processors and supermarkets for the supply of private label milk allow processors to pass-through movements in farmgate prices to supermarkets.

"This means processors set their farmgate prices independent of the supermarkets' retail prices.”

The milk supply chain works by farmers selling their products to dairy processors who process and package the product.

Supermarkets then buy the packaged milk from the processors, both private label and branded products, and sell it to consumers.

The ACCC said it had heard from a number of dairy farmers in NSW and Queensland who are struggling to cover costs in the face of drought conditions.

Processors told the ACCC they can't pay farmers more for their milk because of the low $1 per litre price for private label milk.

Given the existence of the pass-through clauses, the ACCC has found this claim to be incorrect.