Dairy processor Fonterra Australia will pay dairy farmers more for their milk because of strong global and local demand and strength in Fonterra's Australian operations.
Fonterra Australia has lifted its average milk price for the 2017/18 dairy season by 20 cents to $5.50 per kilogram of milk solids.
The company has also updated its forecast closing milk price range to $5.50 to $5.80, from $5.40 to $5.80 previously.
Fonterra Australia will still pay farmers an extra 40 cents per kilogram of milk solids that was announced in May.
That brings the total cash paid to $5.90, and the forecast closing range to between $5.90 and $6.20.
Managing director Rene Dedoncker says improved market conditions and the strength of Fonterra's Australian operations have supported the price increase.
"Since the start of this season, our milk pool has grown, and our assets are nearing optimal capacity," Mr Dedoncker said on Friday.
"Coupled with strong demand from Fonterra's Australian and global customers, this has enabled us to deliver this step-up (price increase) to our farmers."
Mr Dedoncker said the price increase will improve cashflow on farms and give more confidence to farmers.
Fonterra Australia warned, however, that the current rally in the Australian dollar was likely to influence the end-of-season milk price, albeit within the forecast range.
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