Final report on review of Fonterra’s base price calculation

Issued 15 September 2016
Release No. 32

Commission releases final report on its review of Fonterra’s 2015/16 base milk price calculation

The Commerce Commission today released its final report on Fonterra’s base milk price calculation for the 2015/16 dairy season. The Commission’s view, after considering submissions on the draft report released last month, is that Fonterra’s calculation of the 2015/16 base milk price is largely consistent with both the efficiency and contestability purposes of Dairy Industry Restructuring Act (DIRA).

Deputy Chair Sue Begg said that the conclusion changed from the draft report because the Commission was not able to conclude on the practical feasibility of the asset beta, which is a key input to the weighted average cost of capital in the milk price calculation.

“Having considered the submissions made on the draft report, we decided we did not have enough evidence to conclude on the practical feasibility of the asset beta. However, we do feel that this is a matter that can be resolved and have set out in our report suggested next steps in this regard. ”

The Commission appreciates Fonterra’s continued efforts to provide more transparency of information about how it calculates the milk price and the ongoing efforts from interested parties to improve the milk price monitoring regime.

“We particularly acknowledge the efforts of Fonterra and its expert, and of other interested parties in engaging on the thorny asset beta issue,” Ms Begg said.

“We also want to thank those interested parties who have made submissions for the first time - the farmer suppliers. We look forward to continuing our engagement with a range of parties in undertaking our future reviews.”

The report and related information can be found here.

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