A local supermarket on the New South Wales south coast has increased the price of milk and will donate the extra profit back to local farmers.

The store at Milton, near Ulladulla in the Shoalhaven, put the price up by 10 cents a litre, and will take the money back to the farm gates of the four local dairy farmers left in the area.

Co-owner of the IGA store Anthony Latter said the decision to increase the price was made in response to requests from the community.

"People are very on board," Mr Latter said.

"They have been asking what milk to buy as there is a lot of milk varieties out there and they are wanting to support the local farmers," he said.

The decision came amid calls by farmers and petitions by the community for bigger supermarket chains to increase the price of milk on their shelves and government discussions around whether to impose a milk levy during the drought.

Despite resistance from other supermarkets, the store decided to take action.

"We've taken a stand, now we have to row our own boat and look after our local community," said Shane Wilson, the store's other co-owner.

Mr Wilson also said it was important to the supermarket and its customers that the money went to local farmers.

"Doing it this way means we know where the money is going and we can keep it in our community," he said.

'The best gesture you could imagine'

Dairy farmer Robert Miller, who lives near the town of Milton, said he had been overwhelmed by the generosity of the community.

"When you've got the community backing you in a situation where you are losing money, producing milk is a good feeling," Mr Miller said.

He said while he hoped the big supermarkets would also increase their milk prices to make farming sustainable for NSW dairy farmers in the long term, it meant a lot to have the support of local businesses.

"It's the best gesture you could imagine," he said.

Robert Miller in front o the signs he has erected out the front of his Milton farm on the Princes Highway, demanding higher milk prices at the farm gate. ( Supplied. )

Supermarkets not budging

The major supermarkets have so far refused to increase their milk prices.

Woolworths indicated if the other big food businesses agreed to raise the price by 10 cents a litre, it would also.

Coles, however, has not budged.

The supermarket giant maintained the processors needed to alter the price of milk at the farm gate as outlined in an Australian Competition and Consumer Commission report released earlier this year.

Despite this, both Coles and Woolworths have been raising money for drought-affected farmers with Woolworths donating all profits from a day of fresh food sales on August 11.

Coles was also matching customer donations at checkouts dollar for dollar, and had donated $5 million to the Country Women's Association drought relief efforts.

The Milton supermarket will trial the higher price for a month and monitor sales, and said it expected to maintain the price until Christmas at least.