A kelpie pup gambols around Tom Fairley, John's 24-year-old son, who represents the seventh generation of Fairley men to farm this land which looks just as it does on on the label of the Fairley's Country Valley brand milk.

In the age of the supermarket ''milk wars'', where the major stores discount milk to $1 a litre, many dairy farmers have been forced to run at a loss or get out of the industry. But the milk wars have produced an unlikely victor: tiny, independent dairies are re-entering the market and thriving.

With just 100 milking-age cows and a prescient 2004 investment in a small bottling factory on their farm near Picton on Sydney's south-western outskirts, the Fairley dairy's revenue has risen 45 per cent since the supermarkets began discounting.

''We all have [had that growth]; all the small people up and down the coast,'' John Fairley said.

Their success is driven in part by foodies interested in fresh local produce, and also by protest purchases by consumers troubled by the ethics of $1 milk. Their timing - catching a rising tide of interest in the ethics and processes of food production - couldn't be better.

''Everyone thought how can they be doing this so cheaply, someone must be losing out - and it's the farmers,'' Tom Fairley says. ''It made people think about it, and our sales went through the roof.''

The Fairleys process milk from seven other southern highlands farms, after taking on three more this year to meet demand. They sell their milk, yoghurt and cream at farmers' markets and supply direct to restaurants and cafes.

Erica and Nic Dibden's dairy farm in Tilba on the far south coast was increasingly unviable when they decided to take control of the prices they were getting for their milk. They took ''a big risk'' to begin processing and bottling milk from their 600 jersey cows last year, selling locally under their ABC Tilba label. They now employ 15 people in their milk and cheese business.

''We came in halfway through the $1 milk wars, but we've found the perception of the public is they are happy to support farmers directly, and happy to know the money is going back to sustaining farming generally,'' Erica Dibden says.

Mike Logan from industry group Dairy Connect NSW credits the thriving farmers' market sector for the re-emergence of small independent dairies.

''It's true that the little farmers' businesses are growing; it's all based around the food provenance issue,'' he says. ''There's a bit of a revolt against the control of supermarkets … Smaller farmers couldn't get on the shelves and farmers' markets are providing that path to market. It's a limited market but it is a new way - well a bloody old way. Perhaps that's part of it.''

The burgeoning paddock-to-plate market is estimated to represent 7 per cent of all fresh food sales and growing fast: since 1999, more than 160 farmers' markets have been established, about 40 per cent operating weekly and 93 per cent financially viable, according to 2012 research. Small farmers are making a decent living from markets, Karl Johnson from Johnson's Farmgate in the Hunter Valley, says. ''The last six or seven years farmers' markets have come into their own,'' he says. ''I don't think the supermarket wars hurt us.''