30 Sep 2011

Milk price fair, Fonterra tells select committee

6:04 am on 30 September 2011

A parliamentary inquiry into milk pricing has concluded the second of its two hearings with dairy cooperative Fonterra saying the regime is fair.

But MPs from the commerce select committee were told on Thursday that the dairy cooperative's model for the price paid to dairy farmers needs to change.

Fonterra reiterated the view of Federated Farmers that if consumers want cheaper milk they must shop around for it.

The managing director of Fonterra Brands told the committee that the dairy co-operative's pricing is fair.

Peter McClure said a separate international and local price would be very difficult to achieve and it would not be fair for farmers or the Government to subsidise a lower milk price.

Fonterra collects 89% of the milk produced in New Zealand and sets the price paid to farmers. It says its pricing regime is transparent, having released its milk pricing manual last week.

Before the committe hearing, Fonterra's new chief executive Theo Spierings said the dairy cooperative charges a fair price for milk, but needs to address the belief that that is not the case.

"The perception is that the price is high, and for me always when you connect to consumers, customers and community, perception is reality. It is bothering us and we will take it back to the drawing board. We will take a fresh look at it."

Independent milk producer Synlait said Fonterra's pricing model needs to include what it gets for lower-value products such as casein, which have not been included in its pricing in the past three years.

More transparency needed - Consumer NZ

Consumer New Zealand told MPs on Thursday there needs to much more transparency around milk pricing at the farm gate and at the retail level.

Chief executive Sue Chetwin told the committee that a Milk Commissioner should be appointed to set the price of raw milk to make the process more transparent.

Ms Chetwin said while Fonterra has finally released its milk pricing manual - under a lot of pressure - it is difficult to know how appropriate the pricing methodology is, but said any change in attitude is a positive development.

"The fact that he (Theo Spierings) recognises that there is even a perception I think is reasonably good news because, before, we've had Fonterra basically saying, 'Look there is competition and we're not going to look at it.'"

Ms Chetwin said there also needs to be greater transparency about what kinds of profit margins supermarkets make on milk.

However, select committee chair, Labour MP Lianne Dalziel, said before the hearing that she did not believe Fonterra would end up actually reducing the price of milk.

"It did sound to me as if he thinks that it is the public perception about the price of milk that needs a fresh look, rather than the price of milk itself."

Fonterra boss predicts growth

Theo Spierings, who took over the chief executive role at Fonterra on Monday, is predicting continued growth in world dairy demand and says New Zealand will be able to fill only a part of that.

Mr Spierings says Fonterra is already the envy of the global dairy industry and sees no reason why New Zealand should not become the global milk capital.