But Agriculture Minister Bridget McKenzie admits it isn't a "silver bullet" that will solve the myriad of difficulties faced by dairy farmers.

"Australia's dairy farming organisations had worked hard to develop the code that would support dairy farmers right across Australia," she said.

The code sets out new rules which will come into effect from January 1 which include processors still being able to cut farmgate milk prices but outlines a new set of exception circumstances.

"It has been so important for state dairy farming organisations and dairy farmers, from across our eight unique dairy regions, to detail the protections needed and to agree what is, and what is not, acceptable conduct in negotiations and in contracts," Senator McKenzie said.

"The final code is different from the draft that was consulted on and is now a stronger, clearer document that delivers the protections it should for dairy farmers.

"In line with feedback received from dairy farmers the code prohibits retrospective pricing step downs."

The code also sets a cooling-off period of 14 days and demands processors publicly release a Standard Form Agreement on June 1 each year, covering the terms of milk supply and a price (or prices) that cover the terms of the agreement.

Other sections of the code include banning exclusive supply arrangements between processors and farmers, banning processors from withholding loyalty payments to farmers if a farmer switches processors and introduces a dispute resolution process for matters to do with agreements.

United Dairyfarmers of Victoria president Paul Mumford said issues with water, drought and the cost of production are still what farmers are concerned with.

Those issues were raised in Dairy Australia's Situation and Outlook report released on Thursday, with its forecast that milk production will fall by 3-5 per cent to 8.3 to 8.5 billion litres in 2019-20.

The report said operating conditions are "mixed" across Australia and northern Victorian dairy farmers continuing to struggle with tight margins.

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The most recent figures released by Dairy Australia show northern Victoria fell 9.1 per cent in October.

"Northern Victorians have been front and centre with the tightest margins for the longest period," Mr Mumford said.

"We all know farmers are adaptable but that region hasn't been able to constantly adapt to the changing conditions, from the milk price crash of the processors, to flooding events, to cost of production, drought.

"They have had three extremely challenging years. That is why we are seeing that district in so much pain.

Senator McKenzie said the mandatory dairy code is an important step forward for protecting the interests of dairy farmers but it doesn't solve all issues.

"Our dairy farmers are under real and sustained pressure because of the drought, high input costs for electricity, fodder and water, and a power imbalance in negotiating a fair farmgate price from processors," she said.

"That's why our government took a $22 million package of support measures to the election.

"These measures, combined with our drought support measures are a comprehensive approach to achieving a viable future for Australia's dairy farmers."

The code was a key recommendation from the 2018 ACCC Dairy Inquiry which found contracting and industry practices were weighted heavily in favour of processors.