Dairy giant Fonterra announced it would be reducing the global milk price from $5.60 per kg of milk solids to $5 per kilogram of milk solids. The cut comes a week after Australia's biggest milk processor and price setter Murray Goulburn reduced farmer payments from $5.60 to $4.75-5 a kilogram.

Dairy Tasmania executive officer Mark Smith said the industry would take a hit from the price cut and said it came after an extremely dry season had impacted farmers’ fodder supply.

The dairy industry in Tasmania has seen unprecedented growth in recent years and contributed about 900 million litres of milk solids last year.

Mr Smith said it was too early to tell if it would have an impact on the growth of the sector but said it would have immediate short-term impact on farmers.

“The serious dairy people will ride it through but in the meantime it will impact some businesses severely,” he said.

“Some of them may even be pushed out of the market, but it’s hard to say.”

Primary Industries Minister Jeremy Rockliff said there was inherent volatility in the dairy sector and while the drop in price was disappointing he was confident the industry could rebound.

“It will have an impact, the industry will take a hit,” he said.

“But investment is there and it is strong...we expect the price will recover.”

Mr Rockliff said it was always challenging when the global price was determined by supply and demand but said Tasmania was a world leader and significant contributor to the world’s global supply of dairy products and would continue to be in the future.

Dairy Tasmania will be ramping up some programs to assist farmers to financially evaluate and manage their business in light of the announcements and will assist to connect farmers to independent advice in the area.