Commerce Commission still considering abuse of market power by Fonterra
By Jonathan Underhill
Aug. 2 (BusinessDesk) – The Commerce Commission found no cause to recommend Fonterra be regulated under Part 4 of the Commerce Act but hasn’t yet reached a decision on Part 2 complaints that the dairy giant misused its market power.
The Part 2, section 36 complaints, from independent dairy companies including Open Country Dairy, Miraka and Synlait, are the “big sleepers” that the commission has yet to rule on, said Peter Fraser, a former Treasury and MAF official who now represents the smaller dairy companies.
“There’s no exoneration of Fonterra – this is very much some big sleeper that could come back and bite them,” he said.
The commission conducted a four-part review of domestic milk pricing. It averred to other law and regulation in opting not to cast judgment on farm gate and factory gate pricing.
It concluded that Fonterra and Goodman Fielder provided enough rivalry in the wholesale market, while at the retail level there was no evidence the supermarkets were taking unusual profits from milk compared to other chilled products.
Commission chairman Mark Berry said the regulator has held off on investigating the Part 2 complaints “because many of those issues were at the forefront of this interdepartmental review.”
Berry said the commission will make a submission to the review of the Raw Milk Regulations being run by a team from the Ministry of Agriculture and Forestry, Ministry of Economic Development and the Treasury.
“We consider it likely that the outcome of their review could lead to a more effective form of regulation for this market than Part 4 could offer,” Berry said.
Fraser, who now has an advisory firm Ropere Consulting, said on domestic milk supply, it is “less whether the Fonterra price is too high or too low and more the fact that nobody knows the price apart from Fonterra.”
Chief financial officer of Fonterra, Jonathan Mason, said the Commission’s report today showed there was “no justification for a price control inquiry or further regulation at any level of the milk market.”
Smaller competitors of Fonterra who made the complaints “may not be doing as well as Fonterra,” he said. “The reality is that competition is thriving in the New Zealand dairy market.”
The commission’s report today noted that at the factory gate, there was “ “little or no competition in the market” and little prospect of an increase in competition. However, factory gate supply was already regulated under the Dairy Industry Restructuring Act and the Raw Milk Regulations, which were designed to constrain Fonterra’s market power.
“Part 4 regulation is only imposed on firms with a high degree of market power, usually because of the natural monopoly characteristics of the industry in question, such as electricity or gas distribution,” Berry said.