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Launch of online calculator looking at milk price components

31 August 2011

Launch of an online calculator looking at milk price components

Hard facts relating to the cost components for processing dairy products and their impact on the domestic prices are virtually non-existent. This makes submissions to the Select Committee inquiry into milk prices based on analytical evidence problematic at best.

With this in mind, The ValueAdd Company searched for information to form a basis of informed analysis. To our surprise, many of the most important facts were found on Fonterra’s website (www.fonterra.com ) and online auction site (www.GlobalDairyTrade.info). These facts related to auction prices, energy usage and indirect costs (from the Annual Report to 30 June 2010).

With this information we developed a user-definable online calculator starting with some default assumptions but with the ability to re-define all assumptions if more accurate figures are known by the user. [See the calculator at http://dairy.nzh1.com from where there are hyperlinks to base information sources.]

Because it is continually being used to justify domestic dairy product prices, the starting point in developing the calculator was to ascertain a “global market price” for the mix of (mainly powdered) dairy products. The GDT website has a spreadsheet file containing all the online auction sales information since it commenced in August 2008 so this proved to be an excellent resource from which to start.

We built up other information from the referenced sources and our calculations came to the somewhat surprising conclusion that for the year ended 30 June 2011, a forecast payment to suppliers for milk of $8.00 per kg of milk solids (not yet finalised) would be $2.73 or 51.7% greater than the figure required to produce a break-even net margin on exported commodity products. [The calculations are all set out in the calculator.]

Exports account for around 95% of Fonterra’s estimated 15 billion litres of raw milk processed each year translating to around 1.3 billion kg of milk solids. This would mean that around 750 million litres of liquid milk equivalent is consumed in the domestic market.

ENDS

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