US re­port de­fends Fon­terra milk price

South Waikato News - - RURAL DELIVERY -

Dairy gi­ant Fon­terra has struck back at claims it is sti­fling competition in New Zealand and crit­i­cism of its role in set­ting the na­tional milk price with a re­port by an in­ter­na­tional con­sul­tancy which finds the ac­cu­sa­tions are ground­less.

United States-based Com­pass Lex­e­con has con­cluded that competition in New Zealand dairy pro­cess­ing has in­creased since Fon­terra was cre­ated in 2001 and the way it sets the farm gate milk price, the de­fault price for all milk, is sound.

The Fon­ter­ra­com­mis­sioned re­port has been pro­vided to Gov­ern­ment of­fi­cials cur­rently putting Fon­terra’s milk pric­ing prac­tices un­der the mi­cro­scope fol­low­ing pub­lic and in­dus­try com­plaints about the high price of its milk and Fon­terra’s abil­ity to set it.

Fon­terra con­trols about 90 per cent of the coun­try’s raw milk sup­ply, which crit­ics claim is hav­ing neg­a­tive down­stream ef­fects on competition in the whole­sale dairy sec­tor and on re­tail pric­ing.

The re­port found there had been growth in competition un­der the Dairy In­dus­try Re­struc­tur­ing Act, leg­is­la­tion passed in 2001 to en­sure a com­pet­i­tive do­mes­tic mar­ket for milk and pro­mote pro­cess­ing competition in the face of Fon­terra’s mar­ket dom­i­nance.

It found there had been sig­nif­i­cant in­vest­ment in ex­panded dairy pro­cess­ing ca­pac­ity by com­peti­tors as well as by Fon­terra and the in­vest­ment in new more efficient plant was driv­ing down man­u­fac­tur­ing costs.

The re­port also found the way Fon­terra cal­cu­lated the milk price, based on global prices for com­modi­ties less the costs of a no­tional com­peti­tor, was cor­rect.

It said do­mes­tic prices had in­creased less than global prices for dairy prod­uct, largely be­cause of the growth of su­per­mar­ket home brands sold at a dis­count.

About 70 per cent of do­mes­tic fresh milk sales in New Zealand were now home brands, the re­port said.

Fon­terra, how­ever, sup­plies all the milk for those home brands.

Com­pass Lex­e­con en­dorsed the fact that the Fon­terra milk price was based on the costs of a no­tional com­peti­tor us­ing efficient pro­cess­ing fa­cil­i­ties, rather than on Fon­terra’s ac­tual man­u­fac­tur­ing costs.

Fon­terra chief fi­nan­cial of­fi­cer Jonathan Ma­son said the re­port es­sen­tially con­cluded that the New Zealand en­vi­ron­ment was fos­ter­ing competition in the dairy sec­tor and that the way Fon­terra set its milk price was fair.

RAW DEAL: The price of daily gro­cery items such as milk has soared.

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