Up to half a billion dollars is expected to be pumped into farmers' pockets after Fonterra lifted its milk payout forecast.
The dairy cooperative has increased its payout to farmer shareholders by 7%, or 40 cents.
It will now pay $6.10 per kilogram of milk solids for the 2009-10 season.
The payout is the second highest in the cooperative's history.
Fonterra chairman Sir Henry van der Heyden says the price increase comes on the back of higher global dairy prices, with demand for products now starting to outstrip supply.
He says the cooperative's 12000 farmers should bank on a similar milk price next season.
The increase means farmers will get an extra $512 million, equivalent to about 0.3% of Gross Domestic Product.
Federated Farmers says the increased income for farmers will be absorbed by drought related costs.
Northland dairy farmer Ashley Cullen, who farms at Maungaturoto just south of Whangarei, says his milk production has dropped by 20% this season because of the drought.
He says the increased milk price will at least cover the cost of the extra feed he's had to buy in get his cows through the summer.
Manawatu farmer Andrew Hoggard says much of the increased payout will be used to repay bank loans.
Farmers' debt has more than doubled since 2005, and they are only slowly paying the money back.
ASB economist Chris Tennet-Brown says debt repayment will limit the economic impact of the higher payout.
