6 Aug 2015

Should Fonterra leave the GDT auction?

2:55 pm on 6 August 2015

Fonterra has countered calls for it to suspend its trading on the Global Dairy Trade (GDT) auction.

Fonterra sign

Fonterra Photo: 123RF

The prices of dairy products traded on the fortnightly online auction plunged again this week for the tenth consecutive time, with the key commodity - whole milk powder - hitting its lowest level since the auctions began.

MP Damien O'Connor

Labour MP Damien O'Connor Photo: RNZ

Some commentators and farmers have questioned, in view of that, why Fonterra is continuing to offer products on GDT - and at increased levels as the new season builds up.

Labour primary industry spokesperson Damien O'Connor said yesterday that the GDT was not working for Fonterra and the dairy industry.

"There must be questions over who are the beneficiaries of a fortnightly trade that is simply driving the value of dairy into the ground," he said.

"GDT is indicative of pricing, but not the final price for [other] contracts that Fonterra or the other companies negotiate. So they just have to go back to the traditional way of negotiating longer term contracts with people who depend upon the supply of the product.

"That might be a better way than trading through GDT."

But Fonterra's managing director for global ingredients, Kelvin Wickham, said GDT was not to blame for the low prices.

He said they were a reflection of the market, which is facing an oversupply of dairy product as political, social and economic challenges affect demand in dairy-importing countries.

He said nearly all of the product offered on GDT this week was sold to willing buyers, and suspending GDT would not solve the supply-demand imbalance.

Fonterra Shareholders Council chair Duncan Coull, who farms in the North Island's King Country, agreed with that.

"GDT informs off-platform sales, so in the absence of GDT informing those, you would have to ask - at what point would you strike with buyers in the market place?

"So given that we have perishable goods, you could only remove yourself from the market for a very short space of time."

He said the great thing about GDT was that it provided transparency on both sides.

"If we were to remove ourselves from the market, we could probably assume that it would create quite some distrust with our buyers and, if anything, could be counter-productive."

Mr Coull said reducing the amount of dairy products offered on GDT was always an option for Fonterra.

Fonterra said it was doing everything it could to move powder and other commodity products into higher value contracts and higher margin products.

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