Cabinet has agreed to support a parliamentary select committee inquiry into the price of milk, Prime Minister John Key says.
The issue will now be discussed at the National Party caucus tomorrow.
Labour and Greens have been pushing for such a probe after the Commerce Commission last week decided not to stage a formal investigation into the price of milk.
Earlier today, Mr Key defended the price of milk, saying he suspects consumers are paying a fair price.
Mr Key told Newstalk ZB this morning it was "more likely than less likely" there would be a select committee inquiry.
"What is quite clear is people are frustrated with the price of milk, given that it is a staple part of the diet," he said.
"They feel frustrated and they're not convinced actually at the moment that they are getting fair a price.
"I suspect that they are, and the work we've done so far would indicate that they are."
Agriculture Minister David Carter yesterday said there would be "some value" in an inquiry taking place.
Federated Farmers: Shop around
In an opinion piece sent to media, Federated Farmers president Bruce Willis recommended consumers shop around for a bargain.
"As I don't have a house cow I buy my milk just like everyone else. Milk remains great nutritional value for money and there are good milk prices by shopping around.
"Supermarkets may not be the best place to buy from if Timaru's Corner Convenience Store has been selling two litres of Dairy Dale for $3.20 and the Harris Road Superette and Lotto in Mt Wellington for $2.90. If we reward dairies like these with increased business then retail milk prices may start falling elsewhere."
Mr Willis said dairy farmers only receive around $1.30 for every two litre bottle of milk sold.
The average price for two litres of standard milk in June was $3.68, compared to $3.23 at the same month in 2008, with a low point of $3.16 during the intervening period, according to Statistics New Zealand.
But prices in supermarkets can be significantly higher.
A 2ltr bottle of standard Fresh Valley milk from Countdown can set you back $4.90, and the same amount of Anchor standard milk is $4.80.
However Countdown's Home Brand standard 2ltrs is only $3.60.
Progressive Enterprise national communications and public affairs manager Luke Schepen said the Home Brand range "represents the best possible price", as it is sourced directly from the supplier.
"What you tend to find with Home Brand products, or private label products, is they don't come with the costs that other businesses perhaps have ... costs such as marketing and the like that a branded product may actually have," Mr Schepen said.
"At the end of the day, what that means is a retailer is able to work directly with the product manufacturer, and the get the products for a great price and pass those products on to consumers."
Mr Schepen would not disclose the mark up placed on milk, however said the overall store mark up sits around 4.7 per cent.
"Once you actually take out interest and tax and the like, it sits under 2 percent," he said. "The majority of the price of a product on the shelf is made up by the price that we pay [for the product].
"Then you've got other costs that go into products such as turning the lights on and off, paying wages, electricity, transport."
- additional reporting NZPA