Woolworths is introducing a special 'drought' milk that costs 10% more - and now Coles is copying them

Woolworths is about to test how much consumers are willing to pay to support dairy farmers, launching a limited edition milk range costing $1.10 a litre in Australia's eastern states next month.

The "Drought Relief" Woolworths-branded milks will sit alongside the existing $1 a litre range and launch in Queensland, New South Wales, ACT and Victoria in mid-October. The extra 10 cents per litre will go directly to dairy farmers in drought-affected areas.

Within hours of the supermarket giant announcing the move, Coles partially followed suit, announcing it would increase the price of its 3-litre Own Brand milk to $3.30 until the end of 2018, with the extra funds also going to dairy farmers struggling with the drought.

The move comes weeks after Coles previously rejected a push by industry body Queensland Dairyfarmers Organisation (QDO) to introduce a 10-cent milk levy - a move backed by Woolworths - saying it had contributed more than $11 million to drought relief via fundraising and donations.

The drought-branded Woolworths milk will be offered in 3lt and 2lt full cream and lite. The retail has already increased the price on its existing 3lt milks to $3.30 in the eastern states in the weeks preceding the release of the new range to begin collecting drought relief funds now. Woolworths says it represents around half the volume sold in the house-branded range. The 2lt house-brand range will remain at $2.

The Farmers’ Own range, introduced in 2013, will continue to sell for between $1.50 and $2 per litre.

The company says it will work with its own brand fresh milk suppliers to set up a drought relief oversight committee to ensure the money is distributed appropriately.

Woolworths Fresh Food director Paul Harker said many of retailer's customers told them they were willing to pay more for milk to support farmers.

“This new range of drought relief milk will provide customers with that choice, safe in the knowledge the extra money will flow through to dairy farmers in drought affected areas,” he said.

Northern NSW dairy farmer and father of three Shane Hickey posted a Facebook video last month calling for the 10 cent levy, saying he'd just been paid for his July milk supply and been paid $2.46 an hour. It went viral and he became the de facto face of the plight of dairy farmers, explaining that his production was down 50% on the same time in 2017.

In response to today's announcement, Hickey said it was "great news", but added "milk's milk - it should be across the board".

"What we need to do now is congratulate Coles and Woolworths and say 'thank you, thank you very much' - took a while - but we also need it on milk that's in Aldi and IGA and any other independent places," he said.

"None of this select crap. You put it on every single litre of milk that comes into your shop."

Hickey also wants the levy of other dairy products such as cheese, butter and cream as additional support for dairy farmers whose product doesn't go into fresh milk.

"None of this running around like a fairy tapping certain things and saying this is what it's going to be on and not. Milk's milk," he said.

But Hickey still took aim at the supermarket duopoly and the prices they pay for Australian produce.

"We are 20% below where we should be in income because of all your price wars and stupid $6 blocks of cheese [it takes around 4.5lt of milk to produce 1kg of cheese] and $1 milk," he said.

"We shouldn't have to come to this. We should have to turn around and say 'hey, you're creating a poverty amongst farmers by doing what you're doing'."