Milk supply general manager Heather Stacy said that the increase followed a scheduled review of farm-gate milk prices.

``Fonterra will be increasing its prices for its Victorian and Tasmanian farmer suppliers by 8 cents a kilogram of fat and 20 cents a kilogram of protein or 13 cents a kilogram of milk solids,'' she said.

``We are experiencing strong demand from our bulk ingredient and export customers, particularly across high-value product categories such as nutritional powders.

``Dairy commodity prices have remained firm over the past couple of months - well above the $US3000 a tonne mark - and we are pleased to have made the most of this for the benefit of our farmer suppliers.

``The domestic retail market remains very competitive but our popular consumer brands such ... are holding their leadership positions in that environment which is pleasing.''

Tasmanian Farmers and Graziers Association milk council chairman Andrew Lester said that the increase would equate to about 1 1/2 a litre and was most welcome. ``That will certainly make a difference,'' he said. ``Fonterra exports 75 to 80 per cent of its milk products and the Australian dollar is not helping us, but the commodity price on markets is favourable and is likely to remain so for the next couple of months.''

Ms Stacy said that the increase would be backdated to July 1, 2011, and represented an additional $16 million for Fonterra farmers.

``The outlook for the remainder of this season is good and we see further upside still to come, which bodes well for a strong finish to the season,'' she said.

``We expect to close well within Dairy Australia's forecast final price range of $5.10 to $5.50 per kilogram of milk solids.''

Ms Stacy said that the company aimed to pass on to its suppliers any improvements in market conditions in the next six months.