Fonterra online auction platform draws praise from MAF

Wednesday 8th July 2009

Fonterra's global milk powder trading platform is a useful clearing house that sets competitive prices at moments in time, but with Fonterra representing only 2% of total world dairy product, the globalDairyTrade market is too small to have any significant impact on global dairy prices, says MAF.

The assertion is made in briefing materials prepared for Agriculture Minister David Carter, who is in Europe this week for talks which will include the recent creation of anti-competitive dairy industry subsidies in the EU and US.

The EU has suggested the globalDairyTrade platform, developed for Fonterra by California-based CRA International, is a cause of recent falls in global dairy commodity prices.

MAF rejects this, and strongly supports the use of the platform managed by CRA, which has developed a similar juice concentrates price trading platform for Ocean Spray, a dominant US juice company.

"MAF strongly supports the gDT initiative," says an excerpt of a wider report for Carter, made available to BusinessWire. MAF "is highly sceptical of the suggestions that gDT can be responsible for adverse shifts in international prices."

"Fonterra does not possess market power in the world dairy market," the report said. "Cross-border dairy trade accounts for only 6% of world’s dairy production, and while Fonterra has over 30% share in the cross-border trade, this represents only 2% of the world dairy production. This is hardly a position of market dominance."

In addition, "gDT is just one sales channel in the global market". The amount of product currently sold via gDT is not significant in either world or New Zealand terms, MAF said.

Strong economic factors that are behind the price falls for dairy products, including increased domestic milk production in Asia, the EU and US, as a response to high world prices; increased supply of New Zealand and Australian milk, as both countries recover from drought; reduced global demand, due to higher prices and credit restrictions driven by the global financial crisis; and the EU and US government interventions.

Fonterra's dGT platform has also attracted skeptical attention from Federated Farmers in New Zealand. Fonterra has so far spurned requests from Federated Farmers for an independent review of its online auctions.

Businesswire.co.nz

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