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Milk will no longer be sold for $1 per litre at Coles.Credit:Bloomberg

The dairy industry has blamed cheap milk for devaluing its product and driving down farm-gate prices,with criticism growing as a crippling drought on Australia's east coast sends many dairy farmers out of business.

Drought has also led to soaring grain prices,making it more expensive for farmers to feed their herds on top of costs like water and power.

In astatement on its website on Tuesday,Aldi said the 10 per cent increase"represents a short-term solution to an industry-wide problem that requires coordinated federal government-led structural reform."

Oliver Bongardt,Managing Director of Buying at Aldi Australia said the decision was reached"in recognition of the significant issues currently impacting the dairy industry and the fact that broader government-led policy reform is unlikely to occur in the short-term."

Coles Group Chief Executive Officer Steven Cain said the company"supports proposals to make Australia’s dairy industry more sustainable,and we are continuing to explore long-term solutions with government and industry stakeholders.

"However we know that many dairy farmers cannot wait for structural reform to be delivered so we are moving to provide relief right now."

The move comes just hours after farmers in Queensland rallied outside the Coorparoo Coles in Brisbane's south on Wednesday,demanding the retail giant support them by lifting its price.

Queensland dairy farmers protesting inside a Coles supermarket last week.Credit:AAP

Both Aldi and Coles will roll out the $2.20 and $3.30 milk from Wednesday.

Australian Dairy Farmers chief executive officer David Inall said while the move represents"a major victory"in the fight against discounted dairy,"it is certainly not mission accomplished"for the campaign.

"Coles and Aldi have both made the right decision to increase the price of their discount milk brands,"he said."The next step for us is also convincing IGA to immediately raise the price on their discount milk."

with AAP