Victorian dairy farmers are angry the organisation they say is meant to represent them has done a deal with the supermarket that created $1 a litre milk.

Coles supermarkets launched a brand of milk this week that will donate 40 cents for every 2 litres sold to a fund distributed by the Victorian Farmers Federation (VFF).

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 3 minutes 17 seconds 3 m 17 s The Victorian Farmers Federation is split over the decision to support a new brand of cheap milk at Coles supermarket ( Warwick Long ) Download 1.5 MB

One insider from the VFF said the deal went against everything the organisation stood for.

"We're there to represent farmers, not to run a propaganda campaign for Coles," he said.

The insider said the deal had been done between the VFF board and Coles shortly after suppliers of dairy giant Murray Goulburn had their milk price suddenly and retrospectively cut.

The VFF board approved the milk fund plan before telling its own dairy advisory group, the United Dairyfarmers of Victoria (UDV).

That decision has opened up a rift between the two bodies, and the UDV so far has refused to promote the new milk brand.

UDV president Adam Jenkins has not returned calls about the split, with a message on his phone asking anyone with queries about the Coles deal to call the VFF.

Former VFF leader says Coles deal is good for farmers

The deal with Coles was the brainchild of former VFF president Peter Tuohey, who admits he approached Coles with the idea of returning money to the farm sector.

He said the deal was not "getting into bed with the enemy", but a chance to return value to the industry.

"We approached Coles because we saw there was a need to return money back to the farmers," he said.

"Dairy farmers were hurting badly because of what Murray Goulburn had done.

"We thought Coles had been guilty of the $1 per litre of milk stuff and they needed to do something to support their suppliers."

Mr Tuohey has left the role as president of the VFF and is now standing for the presidency of the National Farmers Federation.

Farmers say the deal with Coles is sending mixed messages to consumers. ( ABC Rural: Warwick Long )

Cancelled membership and more questions from dairy farmers

Some dairy farmers plan to cancel their VFF memberships over the decision to partner with Coles.

VFF member and dairy farmer Neil Pankhurst, from Tongala, questioned why the farm lobby would choose to promote a milk that was cheaper than the branded product.

"It's sending really mixed messages you know. It's really saying it is okay to buy discount milk if you buy our particular brand of it," he said.

"I certainly think from an industry point of view, we should be encouraging people to buy value branded milk to support the whole industry, rather than just a support package."

Interstate farm lobby groups label deal a gimmick

Despite not being part of the deal, Queensland dairy farmers have slammed it, calling it a public relations stunt.

Queensland Dairyfarmers' Organisation president Brian Tessmann said it was a distraction from the damage discounted milk was doing to the industry.

"If Coles really wanted to do something for farmers they would drop the $1 a litre milk," he said.

"That's the real problem in the whole market, that's the issue that has robbed both so much value out of the domestic market, and of course until recently stole such a huge amount of sales away from the branded milk.

"I think it's a distraction by Coles to take maybe some heat off themselves and probably off their main supplier Murray Goulburn as well ... it's designed to distract everybody's attention and maybe get a bit of good PR."

Consumers wanting to help farmers should buy branded milk, the Queensland dairy farmers' organisation says. ( ABC Rural: Clint Jasper )

Mr Tessmann said compared to the value the supermarket milk price war had stripped from the industry, the money raised by the fund would be "small bikkies".

"I think it's also designed to distract people from what is the real game, in getting some change in the legislation that governs the domestic milk market and fresh food in general," he said.

"That's really crucial at the moment with the effects test and also other changes with the ACCC.

"So I think they're where we've got to focus, not on gimmicks like this."

Buying branded milk more likely to help

Since the introduction of discounted milk in 2011, about 150 dairy farmers have left the Queensland industry, and the state now imports up to 30 per cent of its fresh milk from southern states.

Mr Tessmann said Queensland dairy farmers had launched their own campaign urging consumers to buy branded milk to try to return value into the market.

"For consumers, if they want to help dairy farmers, the best thing they can do is buy a brand of a processor that actually goes and picks the milk up off a farm in Queensland," he said.

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"Of course that's not going to fix it on its own, but from a consumer's point of view that's the best way they can help.

"We need the government to get involved and make sure the whole system works fairer, so that we're not relying on the goodwill of consumers, we're relying on a market that works properly and fairly."