COLES has increased prices paid to the WA milk processor, Harvey Fresh.
Harvey Fresh now receives an extra 2.7 cents a litre for branded and private label milk following the latest price review from Coles.
It was reported in the metropolitan media last week that Harvey Fresh had ruled out passing on the increase to its farmers, a decision which upset their milk suppliers.
But Harvey Fresh defended its actions and said the increase had already been passed on as of January 1.
Harvey Fresh director Kevin Sorgiovanni said Coles had been receptive to the price increase from the time it was initiated by Harvey Fresh in late 2012.
"Coles' positive response to our application to lift wholesale prices provided Harvey Fresh with the confidence to increase farmgate prices from January 1 this year, even though we hadn't agreed on a formal change to the milk supply contract at the time," he said.
"We're pleased and relieved, we have been able to formalise those contract negotiations which underpinned our January 1 milk price increase.
"Our discussions with Coles and the wholesale price increase we have achieved is just one, but an important, component of our drive to create market opportunities and higher prices for WA dairy farmers.
"We are constantly negotiating with retailers, trying to open new markets and develop higher value products to increase farmgate returns, positioning Harvey Fresh as a farmgate price leader."
It was the second consecutive price increase from Coles to Harvey Fresh following a 3.3c/L increase in June last year.
This brought the total increase from Coles to 6c/L in the last nine months.
Coles merchandise director John Durkan, said the higher price followed Coles' discussion with WAFarmers about the future of the dairy industry late last year.
WAFarmers released a milk price sustainability report last November which stated at current milk prices the industry was unsustainable.
Mr Durkan said Coles had always listened to WAFarmers about the situation facing dairy farmers and had taken that advice into its price reviews with Harvey Fresh.
Although Coles continued to defend its $1/L campaign Coles general manager of corporate affairs Rob Hadler, said eventually the retail price would have to increase.
"We have never put a timetable on it but at some stage, because farmgate prices will increase, those higher costs will be passed on to consumers," he said.
WAFarmers dairy section president Phil Depaizzi encouraged processors to be proactive in getting higher returns back to farmers in order to see an increase in production.