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Doubts continue about milk prices in NZ

Gordon Copeland Press Release
For Immediate Release
Wednesday, 6th August 2008

Doubts continue about milk prices in NZ

Independent MP Gordon Copeland yesterday used his speaking slot in the House to take the Government to task for its failure to fully investigate the huge increase in the price of milk.

“I began raising this issue back in March both publicly and by letter to the Commerce Commission,” said Mr Copeland.

“I have personally come to the conclusion that there is a valid case for decoupling the domestic price of milk so that it no longer rises and falls inline with overseas markets.”

“The costs involved in the production of milk for the domestic market are straightforward. There are essentially just four elements; the price paid to the farmer (currently 60 cents per litre), processing at the treatment plant, transport to the point of sale, and the retailers margin.”

“Dairy exports (including milk powder) by contrast face an array of cost hurdles before an additional profit can be gained for the farmer. These costs include:

• The costs of Fonterra, the dominant exporter. This includes all of the vast international corporate structure of the company, with its highly paid executives, marketing and the like. None of it has relevance to the domestic milk market.

• The cost of freight and insurance to the importing countries.

• Any tariffs payable to the importing country.

• The exchange rate risk involved.

• The cost of distribution from the port of entry, to the retail shelf.

• The retailer’s margin.

• The cost of any value added tax, GST, or similar at the point of sale.”

“When all of that is taken into account, it is abundantly clear that the netted back income to the New Zealand dairy farmer from exports, is completely different than that for the production of milk for the domestic market.”

“I relayed these points to the Commerce Commission by letter dated 1 May 2008, since they had informed me that they were undertaking preliminary inquiries and gathering further information in relation to milk pricing in New Zealand. I have yet to receive a response.”

“Meantime, my concern around this issue continues to grow. In fact I have recently been told by a dairy farmer that the proceeds of milk sold in NZ are actually being used to subsidise the costs of Fonterra!”

“I don’t know whether that is true or not, but I do know that we have now reached the point where the Government needs to act or risk sending a signal to the voters, just a few months ahead of the elections, that is simply doesn’t care.”

“Everyone knows that many families are now struggling financially, yet the Government continues to sit idly by and repeat, without question, the mantra that our domestic prices have rocketed because of increased international demand. It is simply not good enough.”


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