First milk price review out

The commission has little criticism of the manual which determines how Fonterra calculates the farm gate milk price.

This is the first of two statutory reviews the commission is required to undertake each milk season under the 2012 amendments to the Dairy Industry Restructuring Act 2001 (DIRA).

This first statutory review requires the commission to report on the extent to which Fonterra's milk price manual is consistent with the purpose of the milk price monitoring regime.

The purpose of the regime is to promote the setting of a farm gate milk price that provides incentives for Fonterra to operate efficiently while providing for contestability in the market for the purchase of milk from farmers.

"Our initial observations are that Fonterra's manual is materially consistent with the purpose of the DIRA milk monitoring regime," says Sue Begg, Commerce Commission deputy chair.

"There are a couple of elements that we consider are inconsistent with the purpose of the Act, but they have only a minor impact. There are also a few matters that we consider may not be consistent, but we don't have sufficient information at this stage to form a view. We are seeking that information in response to this draft report.

"Given the difficulty of looking at the manual in isolation, we will look more closely at the practical application of some aspects of the analysis when we undertake the second review next year."

The second statutory review each milk season requires the commission to report on the extent to which the assumptions adopted, and the inputs and processes used by Fonterra in calculating the base price, or farm gate milk price, for the season are consistent with the purpose of the act.

The commission is seeking comments from interested parties on the draft report by November 15, 2012. The commission intends to publish its final report by December 15, 2012.

You can find the draft report on the commission's website: www.comcom.govt.nz/statutory-review-of-milk-price-manual