The price gap between branded and house-brand milk is expected to increase from at least 13pc to 70pc, reducing demand for branded milk.

House-brand milk accounts for between 50 and 60pc of total fresh milk sales and is tipped to reach 75pc unless processors bring prices for branded products more into line with house-brand prices.

"Although the price reduction is only on private label at the moment, we would anticipate the pricing of branded product is also likely to reduce as the price differential or premium would appear substantial," Nomura food and retail analyst David Cooke said.

Processors may also have to lift prices for other dairy products, such as yoghurt and cheese, to recoup weaker margins from milk in a process known as the 'waterbed' effect.

"There's an argument to say they're going to have to make it up somewhere, somehow," Mr Cooke said.

Other retailers have vowed to match Coles' move, negating the competitive impact of the price reductions.

Franklins said it would reduce the price of No Frills milk to match prices introduced last week by Coles, Woolworths and Aldi.

"While we acknowledge these prices are unsustainable in the longer term, to remain competitive, Franklins has no choice but to match the prices being offered by the major retailers," managing director Roni Perlov said.

While consumers stand to benefit, dairy processors have been left reeling.

The worst affected is Kirin's National Foods/Dairy Farmers, which supplies house-brand milk to Coles in all States except Western Australia and the Northern Territory, and Woolworths in all States except Queensland and the ACT.

National Foods was in negotiations to renew house-brand contracts when Coles announced the price reductions on Australia Day.

"This is a dramatic pricing change and will clearly affect the white milk category," a National Foods spokesman said.

"This is a complex issue and we are working through what impact this change will have on our business."

Last month Kirin wrote down the value of its $3.7 billion dairy assets by $500 million because of low returns.

Analysts believe more write-downs may be necessary if prices remain under pressure long-term.

This article appeared as part of North Queensland Register’s “Year in Review” feature.