Fonterra said it aimed to pay its cash-strapped Australian farmers a A$5.70/kg to A$6.10/kg milk price for the 2017/8 season and would reimburse suppliers interest paid for last year's support loans after discussions with its key supplier, Bonlac Milk Supply, in Melbourne.
The co-operative said its forecast full year farmgate milk price range of A$5.30 to A$5.70 per kg of milk solids, would include additional payment of 40c per kg of milksolids.
Fonterra Australia managing director René Dedoncker said the business was in a stronger position, which underpinned its forecast for the year.
"Providing Fonterra's forecast full year price range now is aimed at giving our farmers guidance so that they can plan for next season with confidence," he said in a statement.
"We said that we would consider Murray Goulburn's recent announcements including the decision to forgive its Milk Supply Support Package. We've consulted with the Bonlac Supply Company on the best way to respond to our suppliers," he said.
Fonterra will also reimburse the interest charge for the Fonterra Australia Support Loans package that was included in this season's milk price to all current suppliers.
"We believe this payment is the right thing to do and we're committed to ensuring our farmers are better off by partnering with us," he said.
Fonterra had met with Bonlac after Murray Goulburn - Fonterra's main competitor across the Tasman - decided to dissolve a controversial scheme that was aimed at clawing back milk payments from Aussie farmers.
All future repayments to scheme - which were to recommence from this July - would cease, Murray Goulburn said last week. The company would also make a payment to continuing and retired suppliers who had made scheme contributions between July and September last year.
Fonterra, under its supply agreement with Bonlac, has to match or better Murray Goulburn's milk price.
The New Zealand co-op had last year complained that Murray Goulburn was paying unrealistically milk prices at a time when world prices were depressed.
The bubble burst in April last year when Murray Goulburn slashed its A$5.60 per kilogram of milksolids farmgate milk price, which meant Fonterra could follow suit.
Fonterra has for years lost money in Australia and the last two have been particularly difficult as the co-op was forced to match its larger Aussie competitor's high milk price.
The New Zealand co-op has only recently returned to profitability across the Tasman.
Australia is a significant market for Fonterra and it is the co-op's second biggest milk pool after New Zealand, and represents close to 20 per cent of Australia's total milk supply.
Last month, the Australian Competition and Consumer Commission filed Federal Court proceedings against Murray Goulburn over last year's milk price announcements.
Australian media last week speculated that recompensing Aussie farmers could cost Fonterra up to A$60 million.