2 Jun 2012

Rivals 'not convinced' by milk pricing review

6:41 am on 2 June 2012

Rival milk processors say they remain to be convinced by findings that Fonterra is not stifling competition in the industry by over-paying farmers for milk.

A review by the Commerce Commission says the co-operative, in setting its milk price, is complying with rules set out in proposed legislation.

Parliament is considering changes to the Dairy Industry Restructuring Act that include tightening up scrutiny of the way Fonterra calculates the price it pays farmers for their milk.

The amendment also provides for the introduction of Fonterra's Trading Among Farmers (TAF) plan.

The commission will have the role of monitoring the farm gate milk price on an annual basis. A dry run has been conducted to inform potential investors in the TAF scheme how the price monitoring regime would work in practice.

There has been criticism that Fonterra is paying its farmers an artificially high milk price to stop rivals gaining a foothold in the milk processing market.

In a draft report to a parliamentary select committee considering the bill, the Commerce Commission says its initial finding is that Fonterra's price setting process fits in with the purpose and principles of the Dairy Industry Restructuring Act.

It found that the pricing system does not prevent efficient processors from competing with Fonterra in getting milk supply. The draft report is open for submissions.

However, a spokesperson for three rival companies, Peter Fraser, says the legislation does not allow the commission to explore whether the pricing methods are enough to allow full and open competition for farmers' milk.

Fonterra says the commission's findings vindicate its pricing methods.