Fonterra’s commissioned report faces industry criticism

The report, by competition consultant Compass Lexecon aimed to provide an economic evaluation of whether the current industry regulation in New Zealand, the Dairy Industry Restructuring Act (DIRA), had been effective in ensuring a competitive and economically efficient dairy market.

However, the report concluded that competition in the New Zealand dairy processing sector had increased and therefore the way Fonterra had set its milk price was fair.

“The Milk Price reflects international dairy commodity prices, less the costs to produce and export those commodities,” ​said Fonterra group chief financial officer Jonathan Mason.

Criticism​

According to Radio New Zealand, the report has received criticism from the country’s second biggest dairy processor, Open Country.

The processor is pushing for changes as it says Fonterra, with 90 per cent of the market is far too dominant.

Dr Robert Willig University Professor and lead author of the report dismissed criticism on the way Fonterra calculates its milk price along with complaints that it was a draft based on limited information, reported Radio New Zealand.

He said the report was the final version and the authors had all the information they needed to properly analyse Fonterra’s milk pricing method.

Competition​

The report was commissioned following concerns regarding the efficacy of the DIRA achieving such goals addressed recently in a submission by the New Zealand Ministry of Agriculture and Forestry (MAF).

The submission raised concerns by competitors that Fonterra had set its farm gate milk price -the price it pays farmers – at a level that was too high to allow for fair competition, thereby raising the costs of rival processors.

Fonterra released the report while the dairy industry waits for a decision from competition watchdog the Commerce Commission on whether a retail milk price control inquiry is required.