3 Aug 2011

Commission not ruling out future milk price inquiry

6:06 am on 3 August 2011

The Commerce Commission says its role in investigating the price of milk may not be over yet.

The commission has decided after a preliminary review there is no basis for a full inquiry into whether there should be price controls for retail and wholesale milk.

However, it may look further into how dairy cooperative Fonterra sets the price it pays farmers for their milk and what it charges other processors.

The Commerce Commission acted following complaints from the Consumers Institute and some independent processors about rising prices.

After reviewing a substantial amount of information, it announced on Tuesday that there is enough competition at the retail and wholesale levels to more than meet the requirements of the Commerce Act.

At the wholesale level, it found that competition between Fonterra and Goodman Fielder exceeds the little or no competition threshold required for the commission to undertake a price control inquiry.

The Commerce Commission says its investigations show that the level of competition and existing regulation arrangements means it cannot intervene.

Commission chairperson Mark Berry says it may revisit complaints about how Fonterra sets the prices it pays farmers for milk, and the price it charges other processors, under another part of the Commerce Act once a separate government review into those aspects of milk pricing is completed.

Milk producers had argued an inquiry was not necessary and that milk prices are being pushed up by strong international demand.

Fonterra, shareholders welcome decision

Fonterra welcomed the decision not to hold a price control inquiry into the domestic milk market.

Chief financial officer Jonathan Mason says it has always argued that there was no justification for an inquiry or further regulation at any level of the market.

Mr Mason says Fonterra's competitors led the call for an inquiry because they want to force down the amount they pay farmers for raw milk.

The Fonterra Shareholders' Council, which represents farmers supplying milk to the cooperative, says the decision vindicates farmers' view that the farm gate milk price is fair and reflects the capital and production costs incurred in the dairy industry.

Independent fears being priced out of market

Independent dairy processors are hoping the Commerce Commission will revisit their complaints.

The director of Klondyke Fresh, Graeme Brown, says there is potential for producers to get priced out of the milk market - meaning consumers will get less choice as a result.

Mr Brown says he pays Fonterra its farm gate prices, plus additional charges including a 10 cent premium, making his product more expensive. He says he then has to compete with Fonterra's brands for customers.

A spokesperson for three other independent processors, Peter Fraser, says the companies have issues with what Fonterra charges for the milk.