15 Aug 2014

Farmers underpaid for milk last season

3:15 pm on 15 August 2014

A Commerce Commission draft review of the price of milk has found farmers were paid too little in the season which ended in May.

That was according to the way the price was calculated in the milk manual which Fonterra uses as a guide.

The dairy operator reduced the price because, as a company, it was making losses partly due to an oversupply last spring.

An analyst at Craigs Investment Partners, Arie Dekker said farmers had lost out, but that was not the whole picture.

"If the price had been set without adjustment and within the parameters that are intended within the Act, then the farmers would have received a higher payout for milk.

"Fonterra's profitability would have been a lot less and a lot of farmers are obviously investors, or owners of Fonterra as well. But the price being paid it is a price that farmers outside Fonterra also receive."

Under the Dairy Industry Restructuring Act, milk price monitoring was introduced in 2012 to provide greater transparency in the way Fonterra sets the base milk price.

However, the law does not cover how Fonterra calculates the price.