Murray Goulburn ups milk price for farmers

Murray Goulburn has increased the price it will pay its dairy farmer suppliers despite market conditions remaining volatile.

Murray Goulburn is Australia's biggest dairy producer Source: AAP

Australia's biggest dairy producer, Murray Goulburn, has increased milk prices for dairy farmers after a cut to prices that sparked a public backlash.

The company said on Tuesday that it will pay an extra 15 cents per kilogram of milk solids to its suppliers, lifting the new price to $4.46.

Murray Goulburn also upped its annual farmgate milk price forecast to $4.88.

Interim chief executive officer David Mallinson said market conditions remain volatile but cost cutting, including 200 job losses, has helped the company lift milk prices.

"Whilst international dairy markets have improved recently, they remain below historical average levels," Mr Mallinson said.

"Recent signs of recovery have come as global milk supply slows year-on-year. However, commodity prices and the strength of the Australian dollar remain a source of risk to current full year forecast."

Mr Mallinson said the business continues to review its costs following the recent axing of 200 staff, mainly at its head office in Melbourne.

The milk price rise comes as the company reviews its controversial support package for dairy farmers after admitting the program has disappointed its suppliers and is testing their loyalty.

Chairman Phillip Tracy last week released a letter to its supplier-shareholders acknowledging problems in the package, which was designed to claw back loans made to farmers after a shock cut to farm gate milk prices in April.

The group's managing director Gary Helou resigned in April after conceding that the farmgate milk price provided in February was no longer achievable and issuing a profit warning.

Murray Goulburn also said there was no change to its full year profit after tax guidance of $42 million, and will provide a trading update at its annual general meeting on 28 October 2016.

Shares in Murray Goulburn's listed entity, MG Unit Trust, were up two cents to $1.21 at 1455 AEST in a flat Australian market.