Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
It is also inviting public submissions on the draft report.
The Manual describes the methodology used by Fonterra to calculate its base milk price – the amount farmers receive from Fonterra for each kilogram of milk solids in a dairy season.
The Commission says its preliminary conclusion is that the Manual is consistent with both the efficiency and contestability dimensions of the purpose of the base milk price monitoring regime, with the exception of the rule for the asset beta.
The Commission says it considers a number of issues from previous years to be resolved and there is more transparency overall.
Recent amendments to the Dairy Restructuring Act (DIRA), which came into force on 1 June 2021, mean Fonterra’s discretion in estimating the asset beta has been reduced.
The Commission’s view is that the Manual rule for the asset beta is inconsistent with new requirements set out in DIRA because it potentially allows for an approach different from the approach prescribed in the Act.
In previous Manual reviews and the review of the 2020/21 base milk price calculation, the Commission identified a number of potential issues with how the Manual gives effect to the DIRA definition of “commodity”
Based on the information available, the Commission says it does not consider these matters as rendering the 2021/22 season’s Manual as wholly inconsistent with the DIRA purposes, but the Commission says it intends to examine more closely how the Manual gives effect to the DIRA definition of “commodity” in a future Manual review.
Submissions on the draft report are welcomed and need to be submitted by 15 November 2021.
A final report will be published by 15 December 2021.
