Milk pric­ing de­fined

South Waikato News - - RURAL DELIVERY - By AN­DREA FOX

Fon­terra will soon make pub­lic its se­cret for­mula for set­ting the milk price as it pre­pares for share trad­ing among its farm­ers. In the first is­sue of a new monthly share­holder up­date, the co-op­er­a­tive said it would pro­vide ex­tra dis­clo­sure on fi­nan­cial per­for­mance driv­ers, in­clud­ing more in­for­ma­tion about the milk price.

Fon­terra, as col­lec­tor and buyer of 90 per cent of the raw milk sup­ply, sets by de­fault the na­tional milk price at far­m­gate and whole­sale and, to a large ex­tent, re­tail lev­els. The method­ol­ogy for the milk price is con­tained in a man­ual, only part of which is pub­lic, and even then only to Fon­terra farm­ers on the re­stricted web­site Fen­ce­post.

Its se­crecy has fu­elled concern amid high prices and var­i­ous of­fi­cial in­quiries un­der way, in­clud­ing by the Com­merce Com­mis­sion, into how the milk price is set. A copy had been made avail­able to Gov­ern­ment of­fi­cials this year but it would not be pub­lic un­til Septem­ber, a spokesman said.

Fon­terra also plans an ex­panded man­age­ment dis­cus­sion and anal­y­sis com­men­tary in its an­nual re­ports and an an­nual state­ment of com­pli­ance with the man­ual. This state­ment will in­clude dis­clo­sures of rel­e­vant build­ing blocks of the milk price cal­cu­la­tion and an in­de­pen­dent au­dit opin­ion. A book­let ex­plain­ing how the milk price is cal­cu­lated will also be pub­lished.

The plan for share trad­ing among farm­ers will re­quire changes to the Dairy In­dus­try Re­struc­tur­ing Act 2001, which the com­pany an­swers to as well as the Com­merce Act. The pub­lic would have re­stricted in­vest­ment op­por­tu­ni­ties through div­i­dend-car­ry­ing units linked to Fon­terra shares. How­ever, share own­er­ship will re­main with farm­ers.

As well as be­ing a con­tentious is­sue this year for con­sumers and for pro­ces­sors which buy raw milk from Fon­terra, the milk price is un­der scrutiny be­cause of the ten­sion that will re­sult un­der the share trad­ing plan be­tween how much Fon­terra will pay its share­hold­ing farm­ers for milk and how much will be avail­able for the com­pany’s div­i­dends. Share­hold­ing farm­ers will re­quire the milk pay­ment to be max­imised. Unit hold­ers want ro­bust div­i­dends.

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