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

 

Housing: Affordability Drops 14%, Driven By Auckland Prices

Housing affordability across New Zealand fell 14 percent in the year ending November 2014, with Auckland’s lack of affordability set to reach levels it hit during the height of the global financial crisis, according to the latest Massey University Home Affordability Report More>>

ALSO:

The Dry: Fonterra Drops Forecast Milk Volumes By 3.3 Percent

Fonterra Cooperative Group, the worlds largest dairy exporter, reduced its milk volume forecast for the 2014-2015 season by 3.3 per cent due to the impact of dry weather on production in recent weeks. More>>

ALSO:

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news