31 Mar 2011

Inquiry into price of milk looks likely

6:19 am on 31 March 2011

The Commerce Commission is investigating whether an inquiry into the price of milk is warranted.

The cost of a litre of regular milk rose by 13c to $1.82 between June last year and January this year.

After a public outcry, the dairy cooperative Fonterra, which dominates the industry, and the country's two biggest supermarket chains froze milk prices until the end of the year.

The commission says it has had complaints about the high retail price of milk and calls for it to hold a price control inquiry, so it's undertaking preliminary analysis to determine whether such an inquiry is warranted under the Commerce Act.

Commission chair Mark Berry says goods or services may only be regulated under the act "if there is little or no competition, and if the benefits of regulation materially outweigh the costs of regulation. We do not undertake such inquiries lightly".

The preliminary analysis will consider the supply of raw milk to milk product processors; the manufacture and supply of milk products; and the retailing of milk products.

Recommendations only

If the inquiry goes ahead, the commission says, an important factor will be whether the increased prices reflect increases in the international price of milk products rather than a lack of competition in New Zealand.

The level of competition between the two major town milk processors and the two major supermarket chains would also need to be considered.

The commission says it has no power at the end of such inquiries to impose regulated prices: it can only make recommendations to the minister.

It has done only two price control inquiries before: into gas pipeline services in 2003 and airfield activities at international airports in 2002.

Fresh complaint suspected

Last week the commission said it wasn't interested in holding such an inquiry, but the head of Consumer New Zealand, Sue Chetwin, says she suspects a fresh complaint has prompted it to have another look at the issue.

Ms Chetwin says that while she can't pre-empt the commission's findings, she suspects it may find a lack of competition in the milk market.