More than 200 Queensland dairy farmers are set to receive a five cent pay rise and extra security from a ten-year contract with Woolworths.
Processing company Parmalat is paying its suppliers an additional five cents a litre over the next three months to help pay skyrocketing feed costs in the drought conditions.
It comes as Parmalat extends its contract to supply Woolworths' Select house brand with Queensland milk.
General manager of the Parmalat supply chain, Vincent Houlihan, says the company's plan to offer more money and waive penalties for farmers who don't meet supply orders, has been made possible by the extended contract with Woolworths.
"Traditionally the supermarket contracts have been offered for one to two years," he said.
"That's not long enough to give you confidence to invest in productivity, innovation or improvements in quality, whereas a ten-year deal gives you that absolute confidence that if you invest, you will see a return."
The pay boost is a result of talks between Parmalat and its supplier group Premium Milk, chaired by John Cochrane.
Mr Cochrane says the rise will help most farmers, but the small percentage who are on shorter contracts won't get as much.
"The five cents (a litre) is for the farmers who have a 2016 contract, in other words a three-year contract; the farmers that have got a 2014 contract, they get two cents."
According to a recent industry survey, Queensland dairy farmers are being paid an average 52.3 cents per litre and need an extra 14 cents per litre to be sustainable.
© ABC 2014
21:01 EST South Australian farmers have held an emergency meeting in the state's Mid North to deal with the fallout from unseasonal frost, a problem most have never had to face before.