Margin on milk sold to independents possible: Fonterra

Tuesday 15th September 2009

Fonterra Cooperative Group will be able to charge a margin of 10 cents a kilogram over and above the farm gate price for milk it sells to independent dairy companies.

The new formula for so-called regulated milk is to take effect in the 2010/11 season, according to a statement from Agriculture Minister David Carter. The requirement to supply a capped amount of milk to rivals was put in place when Fonterra was created from the merger of New Zealand’s two biggest dairy cooperatives.

The amendment applies to the wholesale or ‘default’ pricing formula used to determine how much independents pay for milk that Fonterra is obliged to sell them under the Dairy Industry Restructuring Act.

“A 2008 review found that for five of the last six seasons, independent processors have been able to access milk under the regulations at a lower price than Fonterra pays its own farmers,” Carter said. “This was never the intention of the regulations.”

The margin per kilogram of milk solids reflects seasonal changes in the price of the milk, and the certainty of receiving supply throughout the season.

“Given a uniform supply is considerably more valuable to processors than a seasonal one, I consider it fair that the regulations permit a margin to reflect this,” Carter said.

To provide for the change, a bill will be introduced to the House before June a next year, in time for the start of the season.

Businesswire.co.nz

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