DAIRY giant Fonterra has announced a price increase of 20c/kg milk solids for its Victorian and Tasmanian suppliers.

In a statement released today, Fonterra said the price rise equates to 12c/kg butterfat and 30c/kg of protein.

Fonterra's national milk services manager, Heather Stacy, said the price rise reflected global commodity markets, "where despite some recent softening in demand, prices continue to be above the US$3000 per tonne mark".

"We have also seen some modest improvement in the currency situation, although the Australian dollar continues to be relatively strong," Ms Stacy said.

She said the price increase applies across-the-board to all Fonterra's current Victorian and Tasmanian suppliers and will be backdated to July 1 last year.

Ms Stacy said Fonterra's average annual price was now $4.26 per kg of milk solids.

"Fonterra’s farmgate price has increased by around 18 per cent since the start of the season, which equates to an additional $74 million put in the pockets of our 1300 dairy farmer suppliers," she said.

"Fonterra’s four consecutive step-ups help deliver on our commitment to re-instil confidence in the manufacturing milk price system after the unprecedented volatility of last year.

"We remain determined to reflect any further significant improvement in market conditions in our farmgate prices."