17 Feb 2012

Fonterra milk price system challenged

6:29 am on 17 February 2012

South Island milk processor and distributor says the retail price paid for milk will continue to be more than needed, unless the Government forces Fonterra to change its current price-setting system.

Klondyke Fresh buys its milk from Fonterra. Director Graeme Brown says the Ministry of Agriculture does not go far enough in its proposed changes in a review of dairy legislation relating to milk pricing.

MAF proposes measures to strengthen the transparency and monitoring of Fonterra's farm gate milk price.

Mr Brown says he has an issue with the system used to calculate the price it pays farmers, which is based on a theoretical model, rather than actual costs.

He says MAF uses hypothetical efficient competitor model, which is when there is a monopoly they try and determine using algorithms and competitive bases what competition would look like.

But Mr Brown says that's far too complicated and farmers need actual costs that translate into a price for consumers.

He says MAF's consultation document still does not go far enough in determining what the actual cost is and how that translates to a buy price for independent processors.

Mr Brown says there needs to be an independent regulator for milk pricing.