The supermarket giant started charging $1.10 per litre on Tuesday, with the additional money going directly into farmers pockets.

Coles and Aldi have stated they will continue to sell $1 per litre milk.

Finley dairy farmer, Lachlan Marshall, said it was a win for the industry but only a small piece in the puzzle of the long-term sustainability of the dairy industry.

"I welcome Woolworths' stance and its change of direction - it's a start," Mr Marshall said.

"It's the beginning of delivering value back to our food chain and product.

"Because it is severely undervalued for what it delivers nutritionally.

"I applaud Woolworths for taking a step in the right direction - but it's only a step."

The NSW Farmers Association said it was a big win for dairy farmers, who had been fighting against discount milk since 2011.

It said other retailers should follow Woolworths' example.

Federal Agriculture Minister David Littleproud has called on shoppers to boycott Coles and Aldi as pressure grows for the major supermarkets to support the beleaguered dairy industry. 

Mr Marshall welcomed the stance.

"There is no excuse for these chains to just pull the shutters down," he said.

"It's incredibly disappointing their head in the sand approach to the problem."

Mr Marshall said while he wouldn't benefit directly from the increase in price, it was still a win for dairy farmers.

"I wont benefit directly because my processor Freedom Foods doesn't to the best of my knowledge put any dairy products on Woolworth's shelves," he said.

"So there will be no flow back to me.

"To me it's recognition of the devaluation of our product."

The dairy industry has blamed cheap milk for devaluing its product and driving down farm-gate prices, with criticism growing as a crippling drought across the Riverina sends many dairy farmers out of business.

The price increase would be handed over in full to the 450 dairy farmers who supply its home-brand milk, Woolworths said. The supermarket's one-litre cartons of milk will remain $1.20.

The move comes after Woolworths launched a "Drought Relief" range of milk in September 2018, which included a 10 per cent farmers' levy that has so far raised $5.8 million.

Mr Marshall said he hoped Woolworths' move was the beginning of the end of the $1 milk disaster.

"What is the right price? That's a million dollar question and a difficult question to answer because of the different production zones and costs of production," he said.

"But I think the right price is a price that allows sustainability and allows us to continue to produce a premium product that provides food for our cities and help support jobs and the economy of our rural communities.

"There is still a lot of other issues at the moment around feed costs, the huge elephant in the room being the mismanagement of water and the environment."​