Fonterra's 2014/15 milk price is in line with legislation, Commission says

Monday 17th August 2015

Fonterra Cooperative Group's 2014/15 base milk price is in line with the legislation which merged New Zealand's biggest dairy cooperatives and created the world's largest milk exporter, says the Commerce Commission.

The competition regulator is required to check Fonterra's base milk calculations annually as part of the Dairy Industry Restructuring Act's milk price monitoring scheme. The Auckland based dairy company will pay farmers $4.40 per kilogram of milk solids, which the commission said in a draft report is largely consistent with both the efficiency and contestability in the market for purchasing farmers' milk.

“Fonterra has made a significant effort to improve the transparency of its calculations and we have now resolved some outstanding issues from last year," said deputy commissioner Sue Begg. "Most notably we can conclude its assumed energy and fixed asset costs are consistent with the purpose of the regime.”

DIRA and the competitiveness in New Zealand's dairy market is currently under a nine month review by the Commerce Commission. Among the issues under investigation is whether the DIRA competition thresholds have been met.

Last week, Primary Industries Minister Nathan Guy said independent processors collected 22 percent of all milk solids in the South Island and 9 percent in the North Island, triggering the expiry of pro-competition provisions under DIRA.

The current threshold frees Fonterra from its obligation to supply milk to smaller competitors once at least 20 percent of supply is taken by competitors in both the North and South Islands. Fonterra currently has an 86 percent share of the nation’s milk pool, down from 96 percent when it was set up in 2001.

The commission will take comments on the draft report for the rest of the month, with the final report on Fonterra's milk price calculations due Sept. 15.

BusinessDesk.co.nz

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