Fonterra frets at competitor supply increase

By Neil Merrett

- Last updated on GMT

Related tags: New zealand

Leading dairy group Fonterra has hit out at new government
legislation in its native New Zealand that will force it to supply
local rivals with more milk over the next two years.

Agricultural minister Jim Anderton announced Friday that the company, which is estimated to control over 90 per cent of the country's dairy supply, must offer more milk at regulated prices to its domestic rivals for the next two years. The system was put in place to ensure group's not affiliated with Fonterra retain access to dairy supply, allowing them to better compete in both the domestic and global dairy markets, where input prices are currently surging. However, company chief executive Andrew Ferrier, believes that the system is granting an unfair advantage to companies with whom they are directly in competition by forcing it to undervalue its milk supplies. "We are concerned that Fonterra's competitors, who have access to their own supply, are taking advantage of the situation to acquire cheap milk to compete against us internationally,"​ he stated. Anderton said this will require 500m litres of milk to be supplied at regulated prices by 31 May 2008, with a further 600m litres by 2009 in an e-mail sent to Bloomberg News. The current requirements are for an annual supply of 400m litres a year in 2007. As part of the deal, the government said it would also begin a review of the policy of regulated supply, which it hopes to complete by mid-2008. The review was welcomed by Ferrier, who hopes for an eventual end to the policy of supplying cheaper milk to competitors, agreed during the company's formation in 2001. "We have always believed that it was not in the spirit of the regulations to have Fonterra's farmers subsidising those companies who have access to their own supply of milk,"​ he added. "We look forward to this anomaly being reviewed as soon as possible."​ Fonterra is one of the top six dairy companies in the world by turnover, and the world's leading exporter of dairy products, controlling about a third of international dairy trade. It represents the interests of 11,000 New Zealand dairy farmers, who also act as shareholders in the group.

Related topics: Markets, Fonterra

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