"This Coles thing is doing a deal with the devil," Leongatha dairy farmer Bernard Lubitz told the meeting.

Farmers' Fund milk, launched in September 2016, is a joint initiative of the VFF and Coles.

For every two-litre bottle of Farmers' Fund milk sold at Coles supermarkets across Victoria, 40 cents is contributed to a dairy industry fund that delivers grants for on-farm improvements. So far about $1.5 million has been distributed to farmers.

But it has been embroiled in controversy, with dairy farmers attacking the deal and some questioning the grants process.

The questions from farmers at Friday's UDV annual meeting followed an announcement by VFF president David Jochinke that the next round of grants would give "special consideration" to fire-affected farmers in the south-west.

"We understand there has been a lot of angst around the fund itself," he said. 

"The reality is there is a deal there with Coles, the reality is we have collected money from consumers under a charity and we need to expend those funds."

The fund is expected to deliver up to $500,000 in grants in this round, with applications closing May 31.

Mr Jochinke said the VFF was consulting with the UDV and Coles to "see where this fund can go in the future to try to make it the best it can be for the industry that it is there to support".

But Mr Lubitz said the fund should stop.

"I don't care what you decide to do with it, how you change it, you're creating winners and losers," he said.

"From my point of view as long as we're still fighting dollar milk and 80-cent cheese, we don't want to be here. I am disappointed the VFF ever got their fingers involved in this."

Mr Lubitz suggested it would be better to distribute the funds to a charity such as the Royal Children's Hospital.

UDV president Adam Jenkins said the UDV needed to draw a line in the sand on the issue.

"It is a commercial contract and it's been done," he said. He also defended the audited numbers on the fund.

"The auditors have been right through that so the numbers are real numbers so there is no funny business in the numbers," he said.