Milk price manual report released

This is the first of two statutory reviews that 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 an incentive to Fonterra to operate efficiently while providing for contestability in the market for the purchase of milk from farmers.

"Our conclusion is that, to the extent we are able to assess it, Fonterra's manual is not inconsistent with the purpose of the DIRA milk monitoring regime. There are a couple of elements that we consider are not fully consistent with the efficiency aspect of the purpose, but they only have a minor impact," said Sue Begg, Commerce Commission Deputy Chair.

Begg says there were a number of caveats to the commission's conclusion.

"In particular there are three matters about which we are unable to form a view in our report, and which we consider to be potentially material," she said. "We will examine these matters again in our second, separate but related, review in September 2013. In that review we will look at how Fonterra has applied the milk price manual to calculate the milk price."

"The three matters of potential concern are the regions where plants are assumed to be added, the calculation of milk collection costs, and the treatment of assets that are no longer required.

"There are also other matters about which the manual is not specific. We will not be able to form a view on these until the September review."

"Parts of Fonterra's milk price manual states general principles or high level rules. While these are not in themselves inconsistent with the purpose, they could be implemented in a manner that is," says Begg.

See: www.comcom.govt.nz/statutoryreview-of-milk-price-manual