The Government is adamant the changes will reduce milk prices on supermarket shelves and boost competition in the dairy sector. Sadly, the Government is wrong on both counts.
By forcing Fonterra to provide more subsidised milk to competitors, the Government is only making life easier for foreign investors in the dairy sector.
They all buy raw milk from Fonterra but none of them puts milk on the domestic market. They turn cheap milk from Fonterra into exports with some profits they make ending up offshore.
These companies can also buy milk on the ‘shoulders’ of the season – not just the peak season – at which time its more valuable.
In essence the Government wants subsidies to continue for competing companies at a time when Fonterra itself is being asked to reduce the cost of milk to New Zealand milk consumers.
It’s unfair to expect Fonterra to continue subsidising other processors and keep milk prices down at the same time.
Is Fonterra the only player involved in retail milk pricing?
What about the supermarkets? Ensuring price reduction would also require keeping control of the cosy supermarket duopoly, which arguably has more influence over the retail price of milk than Fonterra.
The fundamental issue is that Fonterra is a legal monopoly, dominating an economy in which the free market is supposed to rule.
There are very good reasons for keeping New Zealand’s dairy industry unified, as any comparison with the structure and performance of other agricultural sectors shows.
Fonterra accepts the need for regulations to ensure fair competition.
But singling out Fonterra is not the way.
Right now it seems this Government is determined to assist privately-owned dairy companies at the expense of the locally-owned cooperative. This is plain wrong.
– Sudesh Kissun
