In a first for the Australian dairy industry a major supermarket has started dealing directly with individual farmers.

Woolworths signed a deal with seven dairy farmers from the NSW Manning Valley in June and after three months of testing the farmers' milk is now on supermarket shelves.

The Farmers' Own brand has been stocked in eight stores on the state's Mid North Coast and the farmers hope it will soon be expanded into other areas.

Tim Bale, chairman of the Mid Coast Bargaining Group and one of the seven farmers supplying Farmers' Own, won't divulge the price per litre Woolworths is paying due to a non-disclosure agreement, but says it's fair and more than Lion and Parmalat paid.

"We have a three-year contract which we've never had before with a processor. People say 'Well there's risks involved in that'," he said.

"We've never had any guarantees before, we've probably got a water-tight, or we feel, a more water-tight contract than we've ever had before."

The deal is for 16 million litres of milk, but Mr Bale says they've been negotiating for more than 50 million from the start.

"I'm still negotiating for that, and probably more than that now, but the idea of this is that it's a pilot, we've got to put a foot in the door," he said.

"We could've said 'Well you either take the lot or we're not interested', but what's the point of that? Why shut the door?

"We need to get a foot in there and get this working, see that this is a good model for Woolworths to use, and a good way of farmers to virtually get the best they can out of our product and then work more farmers into it over time."

Other members of the Mid Coast Collective Bargaining Group have already expressed interest in joining the seven farmers.

"We have a waiting list that we'll keep rolling into, and I just don't know when that will happen, we'll just have to keep chipping away and hope that we can get more in," he said.

"But the whole idea is that by doing this, it's brought another buyer into the area, it's made the others sit up and take notice and it's lifted everybody's price anyway."

Tim Bale says the processor hasn't been cut out of the arrangement between the farmers and Woolworths.

"They're just being paid in a different way," he said.

"Woolworths have bought the milk off us and they're contract packaging the milk through Parmalat, so Parmalat still has the throughput."

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