Fonterra Australia dairy farmers are rebelling after the company cut its milk price by 10 percent last week.
The co-operative dropped the payout from $A5.60kgms to $A5.00kgms to match a cut by rival dairy company Murray Goulburn.
It said a contract with a customer means Fonterra was required to maintain its price to match Murray Goulburn.
The Sydney Morning Herald quoted an Australian group of dairy farmers, Farmer Power, as saying they're preparing for 'war' against Fonterra following the cuts.
United Dairyfarmers of Victoria president Adam Jenkins told the Weekly Times that Fonterra was being opportunistic in using the agreement to pay less to farmers.
Mr Jenkins told the paper to lower the milk price and push debt across the supplier base, was fundamentally wrong.
He said many Victoria dairy farmers were feeling "angry, sad and let down" by Fonterra and Murray Goulburn.
One angry Fonterra supplier in Victoria is Karrinjeet Singh-Mahil, who said she was disillusioned with Fonterra Australia.
She said Fonterra should have signalled it was going to cut its milk price at the same time Murray Goulburn made its announcement.
"Murray Goulburn suppliers, when they found out, a number of them immediately rang other dairy companies and moved their milk supply which means those companies are full and we don't have that option - we're basically left with very little option in terms of what we can do.
"We're almost being forced to stay with Fonterra because they are going to lend us money to get us through to the end of the season, but we will have to pay it back with interest and we're tied to them for the next four years.
"It really makes it very difficult to say that there's any fair practice here"
Ms Singh-Mahil said farmers didn't see the cut coming.
"Just after the Murray Goulburn decision we were talking to some farmers and one of them said 'well Fonterra is going to drop aren't they?' and I said 'they would be really stupid to do that, I can't see how they can justify that because they have already budgeted for the $5.60 that they though they were going to be paying until the end of the season'.
"Clearly I was dead wrong, they are that stupid and it's hammered my confidence in their decision making skills, it has hammered my confidence in being able to trust them and I must admit that when we do get ourselves back on our feet after this we are very unlikely to remain with Fonterra.
"One other farmer said to me the other day... 'to me this spells the end of Fonterra's time in Australia, they shouldn't be there and I'm going to work to get them out'."
But Fonterra Oceania head Judith Swales said they had signalled since August last year that price cuts were possible.
"We have an agreement with our farmers that say we will match the price of the market leader and accordingly we reduced our milk price. We had been raising concerns since last August that we didn't feel that the price that was being talked about in the market was the price that was being earned globally, particularly from a global commodities point of view.
Ms Swales said the late timing was because it took time to produce a loan offer.
"We were looking at various options, how do we manage to keep cash going on farms. So clearly setting up a loan scheme, which allows our farmers to still receive a cash equivalent of $5.60kgms, takes time to set up."
She said it wasn't anticompetitive to have to keep the milk price similar to Murray Goulburns' because Fonterra had to honour the agreement with its suppliers through the BSC Milk Supply Agreement.
Around 40 percent of Australia's milk is exported.