Draft report on dairy sector competition in NZ
Commission releases draft report on dairy sector competition in NZ
Commission releases draft report on dairy
sector competition in NZ
The Commerce Commission has
today released its draft report for consultation on the
state of competition in New Zealand’s dairy
industry.
The Commission began its review in June this year at the request of the Minister for Primary Industries as required under the Dairy Industry Restructuring Act 2001 (DIRA).
Deputy Chair Sue Begg said the Commission’s draft finding is that, on balance, there is not sufficient competition at the farm gate and factory gate to consider full deregulation at this time.
“Our primary concern is that competition in the factory gate is very limited. Without the existing regulations, Fonterra would be able to increase the price of raw milk it sells to other domestic processors. This could in turn result in higher retail prices for dairy products in New Zealand,” Ms Begg said.
“While there are signs of competition and growth in the farm gate market, particularly in Canterbury, Southland and Waikato, Fonterra faces little competition as the dominant buyer of raw milk in most regional markets. However, it does not have the ability or incentive to reduce prices to farmers in this market due its co-operative nature and constraints from competitors.”
The Commission also concluded that Fonterra has limited ability and incentive overall to shut competitors out of dairy markets if the regulations were removed.
The Commission’s draft report
has outlined options for transitioning to deregulation in
the future and resetting the current market share thresholds
that prompt a competition review. The recommendations
include:
Taking a staged approach to amending the DIRA
regulatory regime, beginning with a review of the Raw Milk
Regulations with an eye to allowing a factory gate market to
develop
Resetting the market share thresholds in both the
North and South islands to 30 percent (up from the current
20 percent) as the trigger for a competition review of the
dairy industry.
“Our analysis suggests that gradual
relaxation of the Raw Milk Regulations may encourage the
factory gate market to develop. Full deregulation currently
poses a potential risk to domestic competition in goods such
as fresh milk and cheese, where independent processors are
dependent on regulated access to raw milk from Fonterra.
Taking a staged approach to deregulation would mitigate this
risk,” Ms Begg said.
“We recognise that any changes to the regime would need to be carefully managed and welcome submissions from interested parties. In particular we want to test the evidence on the likely costs and benefits of deregulation and whether our recommended approach of developing a more competitive factory gate market is appropriate at this time.”
A copy of the draft report can be found here.
Submissions close at 5pm on Monday 4 December, with cross-submissions to be received by 5pm Friday 18 December.
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