Robert Wiseman Dairies is paying dairy farmers more than 20p per litre of milk for the first time in a year.
Wiseman yesterday said the move was in response to rapid rises in raw material costs, but warned it could only be temporary if its long-term competitiveness appeared to be at risk.
In a trading statement, Wiseman said higher raw material costs had also forced it to charge customers more for its milk in recent weeks.
Wiseman previously warned of an additional £1 million hit from higher raw material costs in the six months to April 2, compared with the first half of its financial year.
It has flagged steep rises in the cost of HDPE - the raw material used to make its plastic containers - and higher energy bills.
Finance director Billy Keane said that sales volumes and turnover in the year to April 2 were "satisfactory", with the firm confident of posting annual results in line with City hopes.
He reported that progress was being made in offsetting the loss of a major deal to supply milk to supermarket chain Asda.
Additional supplies have been delivered to supermarket Sainsbury's.
Tesco has also increased the proportion of milk supplied by Wiseman to 60 per cent from 40 per cent.
Mr Keane said: "Despite the market place remaining fiercely competitive, we are optimistic that we can maintain our current market shares of the major multiples."
Wiseman said work on building a new depot at Raunds, near Northampton, to handle milk for the south east of England will begin early next month.
Around 200 new staff will be employed at the depot while 50 employees will be relocated from its existing sites.
He added that the national roll-out of its one per cent fat milk product - known as The One - will commence if a £250,000 TV advertising campaign in the Scottish and Yorkshire television areas is successful.
The product, which has the same taste as semi-skimmed milk, was launched 12 months ago and Mr Keane said the company was "delighted" with its progress so far.