A Ministry of Agriculture and Forestry (MAF) report on the domestic milk market says it was not able to properly investigate whether competition is helping contain milk price rises.
The report was requested by Agriculture Minister David Carter following an outcry over rising milk and dairy food prices.
The minister commissioned MAF to supply an overview of the domestic milk market, including the effectiveness of regulations intended to promote competition.
The report says the legislation which set up the giant farmer cooperative, Fonterra, did increase competition.
Mr Carter has responded, saying the report shows consumers have a choice of dairy products and pricing.
He says the market is working as it should and the Government won't intervene to lower prices.
However, MAF's report says it lacked the statutory power to investigate the actual state of competition in the domestic market.