Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fonterra's farmgate milk price out of step with efficiency

Fonterra's farmgate milk price out of step with efficiency

By Pattrick Smellie

Aug. 15 (BusinessDesk) - The Commerce Commission says Fonterra Cooperative Group's decision to cut the last season's forecast payout to farmer shareholders by 55 cents per kilogram of milksolids below the result produced by its Farm Gate Milk Price calculation is not consistent with the milk price regime's intention to make Fonterra operate efficiently.

However, it says the decision - the first ever taken to vary the payout from the calculated level since the Farm Gate Milk Price regime came into force in 2009 - was consistent with ensuring competitive provision of milk to alternative suppliers, the commission concluded in its annual review of the regime.

Under the Dairy Industry Restructuring Act, which allowed a merger to create Fonterra despite creating a dominant local market player, the commission must monitor how Fonterra sets the price it pays farmers for milk as part of efforts to ensure it's possible for local dairy market competitors, such as Synlait or Westland Milk, to emerge.

Under the monitoring and reporting regime, the commission has no ability to force any change on Fonterra.

The cooperative announced earlier this year it would reduce the FGMP from a calculated record of $8.95 per kg/MS to $8.40 per kg/MS as it struggled with the impact of very high input prices and unprecedented volumes of milk production on earnings in non-commodity products like cheese. The problem is unlikely to re-emerge this year as global dairy commodity prices are close to half their levels at the beginning of the year and Fonterra's forecast payout for the 2014/15 season has been slashed to $6 per kg/MS.

"Our overall finding is that the way Fonterra is calculating and applying its adjustment to the base milk rice is not consistent with incentives for the company to operate efficiently," the commission's deputy chair, Sue Begg, said in a statement. "Fonterra is setting a lower price to cancel out the adverse effect of a number of unanticipated effects that would otherwise have had a negative impact on its profits."

Conversely, the commission found that if Fonterra hadn't cut the FGMP as it did, that would have been at odds with the sector competition requirements of the regime.

Fonterra will set a final price for the 2013/14 season next month.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Maritime: Navigation Safety Review Raises Big Issues For The Govt

Shipping Federation: "The reports makes it clear that the ratification of the Maritime Labour convention (MLC) is long overdue. Only when the MLC is ratified will Maritime NZ be able to inspect and enforce the labour conditions on international ships visiting our ports." More>>

ALSO:

100 Years After Einstein Prediction: Gravitational Waves Found

For the first time, scientists have observed ripples in the fabric of spacetime called gravitational waves, arriving at the earth from a cataclysmic event in the distant universe. This confirms a major prediction of Albert Einstein’s 1915 general theory of relativity and opens an unprecedented new window onto the cosmos. More>>

ALSO:

Farming: Alliance Plans To Start Docking Farmer Payments

Alliance Group, New Zealand's second-largest meat cooperative, plans to start withholding some stock payments to its farmers from next week to bolster its balance sheet and force suppliers to meet their share requirements. More>>

ALSO:

Gambling: SkyCity First Half Profit Rises 30%, Helped By High Rollers

SkyCity anticipates the Auckland business will benefit from government gaming concessions which were triggered on Nov. 11 in recognition of SkyCity’s $470 million Convention Centre development. Morrison said the concessions would allow the Auckland business to lift its activity during peak period, noting it had a record revenue week over the Christmas and New Year period. More>>

ALSO:

Money For Light: Kiwi Scientists Secure Preferential Access To Synchrotron

Science and Innovation Minister Steven Joyce today announced a three-year investment of $2.8 million in the Australian Synchrotron, the largest piece of scientific infrastructure in the Southern Hemisphere, to secure preferential access for Kiwi scientists. More>>

Telco Industry Report: Investment Hits $1.7 Bln A Year

Investment in the telecommunications sector is $1.7 billion a year, proportionately one of the highest levels in the OECD, according to a report released today on the status of the New Zealand sector. More>>

ALSO:

PGPs: New Programme Sets Sights On Strong Wool

A new collaboration between The New Zealand Merino Company (NZM) and the Ministry for Primary Industries (MPI), announced today, aims to deliver premiums for New Zealand's strong wool sector... More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news