Second milk pricing probe underway

Wednesday 22nd June 2011 5 Comments

A second probe into Fonterra's milk pricing has been launched, with an interdepartmental group spanning three Government agencies looking into the issue.

The Ministry of Agriculture and Forestry (MAF), the Ministry of Economic Development (MED) and Treasury have established a group to look into how the dairy giant sets the prices it pays farmers for their milk.

The move comes after the Commerce Commission this year said it was investigating whether it needed to carry out a full-blown probe of the retail prices charged for milk.

Details of the interdepartmental group were outlined in a briefing paper from MAF and MED which was last week submitted to Parliament's commerce select committee, which is considering whether to conduct its own inquiry.

The paper said the group was establishing whether or not there was a problem with milk pricing and, "if there is a problem, how big it is".

Officials were looking at whether Fonterra's current farm gate milk price-setting methods were appropriate, and whether they were being appropriately applied.

The group was also looking at whether the process for establishing milk prices was acceptable and reasonable in terms of transparency and governance.

If the methods were not appropriate, the group would look at what the alternatives might look like and what the implications might be.

The group is being assisted by outside experts in competition policy, competition law and regulatory economics.

The briefing paper said officials had not yet reached any conclusions.

Fonterra was supplying "considerable commercially sensitive information" which officials were reviewing.

The group was also considering input from independent processors.

The review will conclude either that there was no problem with current pricing models, or that the Government's competition and public policy goals were being impeded.

If competition and policy were being impeded, officials could recommend a response.

The inquiry was anticipated to be concluded within "the next few months".

The briefing paper stressed that there was a considerable way to go before any conclusions were reached.

NZPA

Comments from our readers

On 22 June 2011 at 3:39 pm Milk Drinker said:

I am not a farmer nor do I have any financial interest in Fonterra, now my position is clear. This is political PC rubbish. Who's paying for this independent review? guess who,us the tax payer.The simple facts are Fonterra can sell all they can produce over seas at better prices than what they get here in NZ and where in the world have you or can you buy fresh milk, not milk powder,cheaper than you can here in NZ. We have some of the best quality fresh milk in the world. We should be delighted that our dairy farmers can now earn good money for their product, it wasnt long ago the banks and media were telling us unless milk prices rose we could expect to see mass dairy farm mortgagee sales. Mobile phone pricing and internet useage pricing would be a far better choice to investigate.

On 23 June 2011 at 9:13 am Kwiken said:

I read Milk Drinker's comment with interest, he/she mentions where else can you buy fresh milk in the world?? I understand you cannot buy fresh milk even here!!. The milk we buy here is made from reconstituted milk powder and that gives the milk companies the ability to 'give us' long lasting milk. Recall the days when we bought milk in a glass bottle and within a few days it had gone off. I do agree with this enquiry as I reckon that we shouldn't have to pay world prices when the earning capacity $wise is so varied. I take the example of petrol prices in the state of Brueni where they produce petroleum products and the price of petrol there is equivalent to 5cents US per litre. Their population are totally unable to pay world prices!!

On 23 June 2011 at 11:10 am Drystocker said:

The other day I had a pretty in depth conversation with some friends from town on this subject. They were very concerned that the price of milk was getting to high and that Fonterra should keep it cheap for the locals. My view was that if Fonterra cap the price, then that will flow on down to the farmers(simple economics), so you might as well say that you want the cockies to give you a discount on your milk 'cause they'll be the ones paying. Most farmers are making the most of this boom because they know it wont last for ever and milk prices will come down again for everyone. Later they asked if we wanted to come skiing with them and stay at the Chateau for $550 a night.

On 23 June 2011 at 11:34 am bdl said:

The price we are paying for dairy products in NZ is among the highest in the world.Our standard of living is among the lowest in the developed world. Our kids are starving for want of good nutritiousness food and our 11,000 dairy farmers are, for want of a better expression, creaming it. Maybe Chinese kids are more important than Kiwi kids?

On 5 July 2011 at 3:59 pm Bliss said:

Those commenters above have not read the article. It is about the price Fonterra *pays* for milk (to farmers) not the price it charges to consumers.