Liberal National Party senator Susan McDonald has called for the Australian Competition and Consumer Commission to look into milk distributor Lactalis over allegations it isn't paying production costs and the drought levy in full.

She said she has seen documentation which reveals Lactalis is paying farmers less than what it costs to produce milk, and is including the federal government drought-levy to farmers in their increased prices, rather than adding it on at the end.

"This blatantly disregards the purpose of the payment as an extra levy given exorbitantly high production prices during drought," she said.

"I think consumers believe dairy farmers are receiving the whole 10 cents and it is not true."

The senator told AAP companies should be increasing their baseline prices to reflect the cost of producing milk, which is outlined by the Queensland Dairy Accounting Scheme.

Companies should add on a drought levy after this, but Ms McDonald said "accounting methodology" was creating a loophole which needs to be addressed.

"Lactalis have increased their prices slightly this year, but it remains less that what the dairy farmers' say is the cost of production,' she said.

"I am calling on Coles, Woolworths and Aldi - and Lactalis and Lion - to immediately review their milk buying practices and come back with a fair deal for farmers before Christmas."

A Lactalis spokesperson told the AAP the company would not be commenting.

Australian Associated Press