Fonterra rejects idea of inquiry into milk prices

Thursday 24th March 2011 2 Comments

Fonterra says it rejects the public clamour for an inquiry into how milk prices are set.

"We don't see any need for anyone to dig into a normal commercial market," said Fonterra chief executive Andrew Ferrier.

Milk prices were set as part of a normal commercial process and New Zealanders had to get used to being part of the global market.

Consumer groups and the Green Party have called for a Commerce Commission investigation into milk prices because of claims that Fonterra has an effective monopsony: the company collects over 90% of the milk produced in New Zealand.

Fonterra Brands recently froze the wholesale price of its domestic milk until the end of the year - a decision Ferrier said was "good for business".

Asked whether Fonterra saw any need for an inquiry, he said: "Certainly don't".

There was a competitive domestic market for liquid market, but it was intertwined with the commercial drivers for companies to seek the highest price available, even if that was from exports.

"If you got better returns for the export market, you'd export it," he said.

"New Zealand is integrated into the global market," said Fonterra chairman Sir Henry van der Heyden.

Whether it was dairy, energy or oil, prices were pretty much the same in international markets.

The cooperative said yesterday that farmers would benefit this season from one of the highest milk payouts seen: a surplus of around $8/kg milksolids is likely to result in an average of $900,000 being available for each farmer.

"We're going to have well above average payout ... probably one of the highest ever," Sir Henry said.

But he noted that when the company made its record payout of $7.90/kg in 2008, with $7.66/kg going to farmers as a cash payment, many of them had problems when that bonanza did not continue through the next season.

"Many of our farmers got burned, when they got paid $7.66, and then we dropped the following year to $5.21 - it was a quite difficult year.

"A lot of them got their fingers burned, and they're a lot more cautious now," he said.

Fonterra was encouraging them to bank their big cheques and seek expert advice on what to do with it.

"There is quite a lot of debt being paid back , and farmers are spending a little bit more around the farm on maintenance and repairs, and a little bit more on feed because of climatic conditions," he said.

But he said some farmers were still under financial pressure, especially if they had borrowed to the hilt three or four years ago.

NZPA

Comments from our readers

On 24 March 2011 at 10:43 am Waltraud Maassen said:

Andrew Ferrier what a cynical approach into in industry who can pay $8.- to Farmers but can't decrease the milk price 5 cents. free market or no free market its a disgrace.

On 24 March 2011 at 12:17 pm Willem said:

Off course they do not want people to look at there pricing. That already tells me that they have something to cover up.Farmers in Europa are fighting for higher prices for years. They barely cover costs.Sinds ! feb 2011 it has gone up a little. But prices are still low.Fonterra stop filling your pockets