You might soon be paying 10 cents more for a litre of milk.

Federal Agriculture Minister David Littleproud has thrown his weight behind calls for a 10-cent levy to be applied to fresh milk sold at supermarkets, to be returned to dairy farmers.

The Minister said if the retail industry supported the levy he would work to make it happen.

"We've been proactive in reaching out to the retailers," Mr Littleproud said.

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"[We] said to them, if they're prepared to undertake a temporary levy until such time as we can get market reform, then we will work with them to facilitate a way to ensure that 10 cents would go back to the farm gate."

Earlier this week lobby group Queensland Dairy Organisation (QDO) launched a petition urging supermarkets to increase the price of milk.

The details of the proposal remain vague but Mr Littleproud said he had asked the Department of Agriculture to find a solution that works.

"We want to come in and give the levy integrity [and] we're looking for what mechanism may work as quickly as we possibly can," he said.

Who would benefit?

Currently, only 28 per cent of Australia's dairy production goes towards drinking milk.

The rest is either traded as a commodity as milk powder or processed into value-added products like cheese.

So which farmers would benefit from the proposed levy?

Managing director of dairy processor Australian Consolidated Milk, Michael Auld, said there were many unanswered questions about the proposed levy.

"Are they talking about putting 10 cents a litre on all milk and distributing it back to all farmers, or is it just farmers who supply the fresh milk market," Mr Auld asked.

Dairy farmers hope that if the levy goes ahead, it could help them secure fairer pricing long-term. ( ABC Rural: Brett Worthington )

"If you look at our business, I'm not sure how that plays out for our suppliers."

Mr Littleproud said he would support a levy that went to "the people that need it the most" but did not expand on which segment of the dairy industry that would be.

He also said it would be a temporary measure until structural reform in the Australian dairy industry took place.

Mr Littleproud would not be drawn on what that reform would involve, but alluded to the ACCC report that found a power imbalance in the dairy industry.

Some dairy players are optimistic the proposed levy would be a 'foot in the door' to secure fairer pricing.

Graeme Forbes, president of the New South Wales dairy lobby Dairy Connect, said it could translate to a de facto floor price.

"It's going to be somewhat of a complex system but they may be able to simplify it and result in a permanent basic milk price in the longer term," he said.

"We'll keep the pressure on, we need a longer term price rise."

Scheme through processors preferred

David Littleproud says he would support a levy that went to the people who needed it the most. ( Supplied: David Littleproud )

Mr Littleproud said he had been meeting with processors and expected them to be involved in any levy mechanism.

Mr Forbes said the processors needed to be involved.

"It would be better if it's run through the processors [with] a direct payment back to farmers," Mr Forbes said.

"We have seen complications with the Coles scheme in Victoria."

Chair of the Victorian dairy farming collective United We Stand, Marshal Jacobs, echoed the sentiments of many.

"They're going to have a fair headache getting their heads around how to do it," he said.

NSW dairy processor lifts farm gate price by 3 cents a litre

Meanwhile, as the drought hits milk production volumes, processors are increasing prices in an effort to maintain supply.

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Richmond Dairies, based in Casino, New South Wales, will pay its farmers an extra three cents a litre as a "drought support payment".

Managing director Chris Sharpe said the increase would be backdated to August 1 and reviewed every month.

"I think there are farmers in other parts of Australia that are probably a lot worse off than the farmers in our area, but that doesn't mean to say our farmers aren't doing it tough with shortages of grain and feed, so we hope this helps," he said.

"It's something that we had a look at what we could afford to do and obviously, we operate in the very competitive export market and that's the number that we felt that the business could handle."

Mr Sharpe said the extended dry period had led to a drop in milk production and he hoped the increased milk price would encourage farmers to supply more milk.

"The rain of recent days has been very, very helpful and we're hoping the combination of continued wet weather and coming into the warmer time of year will see production lift," he said.

Farmers supplying Richmond Dairies currently receive an average rate of 70 cents per litre.

Mr Sharpe said he would support any measure that helped farmers including a 10 cent drought levy.

"I would hope that processors and supermarkets look at every option to try and help farmers through this difficult time," he said.

Processor boosts price to ensure resilient industry

Lismore-based processor Norco has indicated it also plans to increase the farm gate price to its suppliers in northern NSW and southern Queensland with an announcement due on Friday.

Norco is concerned about rising costs being faced by farmers. ( ABC Rural: Kim Honan )

Norco chairman and acting chief executive Greg McNamara said it would support a drought levy and pass it back to their farmers.

"I think our concern around the levy is we think that at Norco there has been some significant cost increases on-farm other than drought," Mr McNamara said.

"I think the bigger challenge for the industry is how do we manage droughts ongoing and how do we have a resilient dairy industry to manage floods, drought, weather conditions outside people's control?

"So, we've gone back into the business and looked at what things we can do to improve our profitability on an ongoing basis and pass that directly back to the farmers to support them in this current difficult climate."

Mr McNamara said the answer to building a resilient dairy industry was for all processors to increase their farm gate price.

"We think a drought levy would take longer to implement than it should," he said.

The best way possible forward is for each processor to make an appropriate price adjustment to their base price to support the farm sector."