Coles will increase the price of two and three litre private label brand milk by 10 cents a litre this week.
The supermarket's contentious stand against any change to its eight-year $1 a litre house brand milk sales will end tomorrow (Wednesday).
The supermarket said it was clear many dairy farmers, particularly in northern Victoria, NSW and Queensland, were struggling as a result of drought.
As an interim measure, it would lift the price to $2.20 for two litre private label bottles and $3.30 for three litres of Coles Brand milk in most supermarkets on Wednesday morning, rolling out the new pricing arrangements across all stores in coming days.
It claimed to be already paying dairy processors the highest farm gate milk prices in four years, without passing on the added expense to customers.
We know many dairy farmers cannot wait for structural reform to be delivered so we are moving to provide relief right now
The retailer said it would will work with dairy processors to ensure the benefit of this retail price increase went directly to dairy farmers who supplied Coles Brand milk.
"Coles sources 100 per cent of our Coles Brand fresh milk from Australian farmers, many of whom are struggling as the impact of drought compounds ongoing challenges in the dairy industry," said group chief executive officer, Steven Cain.
"Coles supports proposals to make Australia's dairy industry more sustainable.
"We are continuing to explore long-term solutions with government and industry stakeholders.
"However we know many dairy farmers cannot wait for structural reform to be delivered so we are moving to provide relief right now."
The company said it recognised price increases alone would not solve structural challenges facing Australia's dairy industry, and acknowledged the commitment of the federal government to deliver longer-term industry-wide solutions.
In addition to this latest initiative, with the help of customers, Coles had committed $16 million since the beginning of the financial year to support farmers and producers doing it tough due to the impact of drought.
This included almost $4m distributed to dairy farmers through the Coles Dairy Drought Relief Fund, and over $7 million raised for more than 2400 farmers through the Country Women's Association's Drought Appeal.
Since 25 February Coles has also been collecting customer donations at our supermarket registers nationally for the CWA Drought Appeal and is matching every donation dollar for dollar.