Govt deaf to Fonterra's complaints

Tuesday 24th January 2012 3 Comments

Fonterra’s cost of complying with special regulation is “significantly outweighed” by the benefits of its privileged position in the New Zealand dairy market, agriculture ministry officials have concluded.

But Fonterra says the Ministry of Agriculture and Forestry’s draft findings on proposals to increase how much milk the cooperative must sell milk to competitors at regulated prices is a “backward step” that will cost it $200 million over three years.

The MAF regulatory impact statement relates to proposed amendments to the Dairy Industry Restructuring Act and Raw Milk Regulations, and recommends imposing stricter conditions on Fonterra, which produces about 96 percent of the nation’s raw milk.

Among the measures touted is an increase in volume of what Fonterra has to make available to its competitors, and more comprehensive transparency of how the dairy exporter sets its prices.

“These proposal aim to ensure that the DIRA and the Raw Milk Regulations remain a durable platform for the continuing growth of a competitive and innovative dairy sector,” Primary Industries Minister David Carter said in a statement.

“The amendments will result in a regulatory regime that promotes a more transparent and efficient dairy market.”

MAF spent much of last year seeking industry feedback on tinkering with the legislation that enabled the creation of Fonterra and its dominant position in the market.

At the same time, Fonterra has been working at overhauling its capital structure, including a scheme approved by shareholders that would let the cooperative’s owners trade shares among themselves, and open up outside investment through a fund exposed to its commercial performance.

In response, outgoing Fonterra chairman Henry van der Heyden tapped into growing anti-foreign investment sentiment, saying “it makes no sense for Fonterra’s farmers to do the hard yards producing this milk, only to be forced to hand it over to companies who then ship it straight offshore and pocket the profits.

“The proposed changes will see windfall profits head straight into the pockets of increasingly foreign-owned dairy companies and will hinder, rather than help, New Zealanders get access to affordable milk,” he said.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 24 January 2012 at 7:45 pm Toni said:

"Will hinder New Zealanders get access to affordable milk"....what a load of rubbish! As it stands: 1.milk is the ONLY product NEVER discounted 2.Milk pretty much costs the same as petrol (I find this particularly difficult to believe considering the constant military and political global unrest, not to mention the lives that are constantly lost just to get a barrel of crude oil...and yet milk produced from a few million COWS right here in paradise can cost just as much to the consumer... unbelievable!!!) How's about the people of New Zealand stop getting ripped off with dairy prices. I'm all for profit and business and progress, but I don't see why 4 million people living up or down the road from these cows, should be paying Global Index Pricing for their dairy. Surely Fronterra, the Government and the Supermarket chains (who make the most profit I'm sure) can together solve this absolutely disgusting attitude??

On 25 January 2012 at 11:24 am Steve said:

Simple economics Toni. Would you sell your car to someone down the road for $7,000 or someone overseas that was offering $10,000 (even after all the shipping involved)?

On 25 January 2012 at 12:35 pm RC said:

Simple economics maybe Steve, but evidently not that simple to the milk co's etc prior to Fonterra who couldn't make things work. The NZ Govt [ie the people] allowed the creation of the Fonterra monopoly, only to be continually slapped in the face with the resulting prices. What is good for Fonterra is good for NZ, but I think Fonterra and the farmers have to be cautious about moaning about regulation - it is exactly that which allows them to exist. I see no reason why there shouldn't be a regulated price & volume to NZers as part of the whole deal and completely unrelated to the internation price. Play the game or play it on your own merits - not ones that were gifted to you.