Fonterra mostly OK over milk price rules

The Commerce Commission says Fonterra is ‘‘largely consistent’’ with the rules over calculating the milk price, although it wants to see farmer support costs made more transparent.

However, Fonterra maintains it is not appropriate to fund the costs from the milk price.

In its draft report on the 2019-20 milk price manual, the commission concedes that while the support costs have not been significant to the base milk price, Fonterra should include them to ensure continued supply, so it is consistent with demands to be contestable.

The commission carries out an annual review of the base milk price each year.

It assesses whether Fonterra’s approach delivers incentives for it to operate efficiently and provides for contestability in the market for purchasing farmers’ milk.

The review is a requirement under the Dairy Industry Restructuring Act 2001 (Dira) which created Fonterra.

At present the dairy giant collects just over 80 per cent of New Zealand’s milk supply.

The commission also monitors whether the price Fonterra sets might be too high or too low relative to the price that would exist if the market for purchasing farmers’ milk was contestable.

It recommends Fonterra should consider disclosing its plant capacity in the manual early in each season to provide certainty.

‘‘We consider this would improve the ability of interested parties to assess the practical feasibility of the assumed production volumes.

This earlier disclosure should provide increased transparency of the assumed capacity of the notional processor for the season.

In response, Fonterra said it had not changed its previous position which was it did not consider the manual to be the appropriate vehicle for the disclosures.

The final report will be published on December 13, after submissions have been heard.