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Fonterra has lifted its 2015-16 forecast payout by 75 cents to $5.00 to $5.10/kgMS.
The farmgate milk price increases to $4.60 and the dividend payment remains at 40 to 50c/share.
The increase will be welcomed by farmers, who last month were facing a milk payout of $3.85/kgMS after prices dropped for 10 consecutive Global Dairy Trade auctions.
However, strong increases in whole milk powder prices in the last three GDT auctions have allowed the co-op to increase the payout.
The co-op also reduced its New Zealand forecast production volumes by at least 5% compared with the previous season to arrest the price slide.
Fonterra announced its annual results this morning - a net profit after tax of $506 million for the financial year ended 31 July 2015 - up 183% - after a stronger second half performance in difficult market conditions.
It will pay a final cash payout of $4.65/kgMS for the 2015 season for a 100% share-backed farmer, comprising a farmgate milk price of $4.40/kgMS and a dividend of 25 cents per share.
Chairman John Wilson says extremely challenging trading conditions globally had affected all parts of the cooperative's business.
"Falling global dairy prices due to a supply and demand imbalance impacted the Milk Price, while the dividend reflected higher funding costs following significant investment in capacity to support milk growth in New Zealand, essential investments in the key strategic market of China, and the costs of maintaining a higher Advance Rate through the season.
"The strengthening of performance in the second half resulted in normalised earnings before interest and tax almost doubling, with good growth in our consumer and foodservice businesses and the results of a major push in our ingredients business to offset low milk prices with improved margins."
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