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.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Welcome Home: Record High Migration Stokes 41-Year High Population Growth

New Zealand annual net migration hit a new high in October as more people arrived from than departed for Australia for the first time in more than 20 years. More>>


Citizens' Advice Bureau: Report Shows Desperate Housing Situation Throughout NZ

CAB's in-depth analysis of over 2000 client enquiries about emergency accommodation shows vulnerable families, pregnant women and children living in cars and garages, even after seeking assistance from the Ministry of Social Development and Housing New Zealand. More>>


Speaking For The Bees: Greens Call For Neonicotinoid Pesticide Ban

The National Government should ban the use of controversial pesticides called neonicotinoids after evidence has revealed that even at low doses they cause harm to bee populations, the Green Party said today. More>>


Science Awards: NZAS Celebrate NZ Scientific Achievements

The Marsden Medal is awarded for a lifetime of outstanding service to the cause or profession of science, in recognition of service rendered to the cause or profession of science in the widest connotation of the phrase. This year’s medal is awarded to Dr Mike Andrews. More>>


Court Rules: Affco 'Unlawfully' Locked Out Meat Workers

The note says the full court found for the plaintiffs, "that is that the defendant locked out the second plaintiffs unlawfully and that it breached s 32 of the Act by acting otherwise than in good faith towards the plaintiffs while collective bargaining was still going on." More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news