Australia's largest dairy co-operative, Norco, will lift the price paid to its farmers by five cents a litre.

The move by the northern New South Wales-based dairy processor will cost an estimated $900,000 a month.

While the increase is initially for milk supplied for this month and October, chairman and acting CEO Greg McNamara said the intention was to extend it.

"The business is performing quite well so we've taken the opportunity to put a five cents a litre base price increase on all litres of milk made from September through to October with the intention of trying to take that further," he said.

"We've got some ongoing initiatives to improve our overall cost structure, and all those things we are doing are there to benefit our farmers."

Mr McNamara said the co-operative was frustrated with the conversation the industry was having around a 10 cent drought levy.

"The fact that farmers need an uplift in price now not in six months' time to cope with the current dry conditions especially on the Darling Downs in south-east Queensland where 30 to 40 per cent of our supply is," he said.

Norco has more than 200 suppliers from the Hunter Valley in New South Wales, through the state's north coast and into southern Queensland.

Norco suppliers welcome price increase

Norco chairman Greg McNamara says processors need to increase the price paid to their suppliers. ( ABC Rural: Kim Honan )

Paul Weir, from Tuncester near Lismore, said the price increase was a good start.

"For me here on the north coast, it's grain prices and irrigation that's lifted our feed costs considerably — this is going to go two-thirds of the way to actually cover that grain price deficit that we have everyday," he said.

Rural news in your inbox? Subscribe for the national headlines of the day.

"I've roughly worked it out that it's costing about $500 a day the current grain prices and this five cents will sort of take you somewhere to $375 dollars a day, so it certainly narrows that gap up.

"It certainly lifts the morale, I think that's the most important thing … for most farmers it's a dark time and everyone's contemplating their future and this does shed a little bit of light.

"It's a great initiative and a great start from Norco."

Mr Weir milks 350 cows a day on his farm near Lismore, but said there had been a significant drop in milk production.

"I think there's 8,000 litres there today but last year that would've been about 10,000 litres, so we are about 2,000 litres down and that's purely because of grain and the seasonal conditions," he said.

"With the current grain and hay scenario, we decided that we were going to just drop milk and drop production this year, take the cost out of the business.

"We're feeding probably 3.5 kilograms less to 4 kilograms a day less per cow purely to offset that massive grain price hike."

Dairy farmer Paul Weir says that his milk production is down 20 per cent on last year. ( ABC Rural: Kim Honan )

Mr McNamara was encouraged other dairy processors also lifted the base price for suppliers.

"There is not one dairy farmer in Australia that is not actually feeling the financial pinch at the moment," he said.

On Wednesday, Casino-based Richmond Dairies announced it would pay its suppliers an extra three cents a litre "drought support payment" backdated to August and to be reviewed monthly.

"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," managing director Chris Sharpe said.