Regulator encourages more transparency for Fonterra's off-GDT sales

Friday 14th October 2016

The Commerce Commission wants Fonterra Cooperative Group to provide greater insight into the sale of reference products off the GlobalDairyTrade platform which feed into the regulated milk price.

The antitrust regulator released its draft report on Fonterra's 2016/17 milk price manual, which for the first time includes sales outside GDT for whole milk powder, skim milk powder and butter milk powder. Each season the commission is required to review Fonterra's calculation of what it pays farmers for raw milk to ensure the world's biggest dairy exporter isn't abusing its legislated dominance.

The expansion of the reference products is expected to add 4-to-5 cents per kilogram of milk solids to the price calculation and is expected to deliver a more accurate assessment.

However, the draft report notes the shift away from using GDT prices "means less visibility as to the revenues assumed to be earned by the notional producer" and that "interested parties have expressed concerns that the change gives Fonterra significant discretion and potentially allows manipulation of the milk price to Fonterra's advantage".

The report said Fonterra confirmed product specifications didn't materially differ between on-GDT and off-GDT sales, using off-GDT sales offered more flexibility on shipping timetables and prevented large buyers influencing auction prices, and was open to customers in countries not covered by GDT.

"We agree with independent processors on the importance of transparency for sales included in setting the reference prices," the report said. "This would improve confidence that the milk price is not influenced by information that is not freely available."

The commission recommended Fonterra explicitly state the criteria for off-GDT sales in the manual and prospect analysing revenue between the two sales channels "to test the practical feasibility of the prices achieved from RCP's (reference commodity products) as a result of these amendments," it said.

The final report will be published on Dec. 15.

BusinessDesk.co.nz

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