Fonterra and its suppliers are not happy about a decision by the Government to delay changes to milk pricing regulations for another two years.
As controller of 95% of the New Zealand's milk supply, Fonterra is required to provide other processors with milk at a regulated price.
The regulations also stipulate the amount Fonterra has to make available, which is currently 600 million litres a year.
A Government review supports Fonterra's complaint that it supplying milk to its competitors at a lower price than it pays its own suppliers.
However, the Government has decided to keep the existing price setting formula in place for a further season.
It will draft legislation to introduce an auction system for raw milk for the following year, the 2010-11 dairy season
Fonterra chief executive Andrew Ferrier says that while a move to an auction process is a step towards a fairer system, farmers will have to continue subsidising its competitors by 30 cents per kg effectively for another two years.
He says these competitors increasingly include large overseas investors moving into the New Zealand dairy industry.
That rankles with Federated Farmers' dairy chairman, Lachlan McKenzie, who's also a Fonterra supplier. He says the subsidy distorts the marketplace and New Zealand customers are effectively giving a hand out to overseas investment companies.
But Open Country Cheese, one of the independent processors that's been taking some of its supply from Fonterra, is pleased that the existing method of calculating the regulated or default milk price will continue for another season.
Chief executive Alan Walters says the price is linked to Fonterra's share value. If there's a gap between what Fonterra pays its suppliers and what independent processors are paying for milk, he says that's a reflection of its performance. ÂÂ