the Price of milk

So some Milk distributors are to cut the price they pay to farmers of their milk. The farmers say it is below cost.
2 things.

1. if its below cost then they'll just stopped producing it. Grow wheat instead.
2. personally I'd pay more happily!

On 2, what I mean is our supermarket does 2litres of milk for £1 - great. Rather than the farmers "starve" I'd happily pay £1.10 for 2 litres providing that the extra 5p a litre went to the farmers. If we all did this it would solve the problem?

Finally, just tell me why our corner local shop charges £1.60 for a 2litre milk? (where does the extra 60p go?).