Monday, 27 August 2012 16:13

Fonterra welcomes milk price report

Written by 

Fonterra has welcomed the Commerce Commission's release of its final report on the dry run review of how Fonterra sets its farm gate milk price.

The non-statutory dry run review was carried at the request of the Minister for Primary Industries to show how the Government's new milk price monitoring regime would work in practice.

Fonterra chief financial officer Jonathan Mason says the report's findings show the methodology used to set Fonterra's Farmgate Milk Price does provide for contestability in the market.

"Fonterra has satisfied all 13 of the key drivers for the Farmgate Milk Price reviewed under the statutory testing," Mason says. "The dry run noted a minor issue relating to the calculated cost of capital and this has been addressed for the current season."

Mason noted the commission's assessment provides a solid basis for confidence that our shareholders, the New Zealand public and wider stakeholders can have in the integrity of the Farmgate Milk Price.

"This outcome also provides a sound foundation for full reviews the Commerce Commission will undertake over the next 12 months and beyond," he says.

Sue Begg, Commerce Commission deputy chair, says the timeframe for carrying out the dry run review was compressed as the minister wanted it completed before Fonterra's planned move to Trading Among Farmers (TAF).

"I'm pleased we were able to meet that deadline and help to provide some clarity over the future regulatory environment for the New Zealand dairy industry," she says.

"Following our consideration of submissions from interested parties and our own analysis, our conclusion is that Fonterra's setting of the farm gate milk price is not inconsistent with the purpose and principles of the milk price regime set out in the amended Dairy Industry Restructuring Act."

The review was started using the exposure draft of the amendments to the Dairy Industry Restructuring Act (DIRA) proposed in January 2012, but was completed after the amendments to DIRA were passed by Parliament in July 2012. The final amended legislation included a number of changes from the January 2012 proposals.

Under the milk monitoring regime established in the amended DIRA, the Commission will monitor and report on the extent to which Fonterra's setting of the farm gate milk price is consistent with the purpose and principles of the newly amended legislation.

"As we initially concluded in our draft report in May, Fonterra's farm gate milk price does provide for contestability in the farm gate milk market, as overall the assumptions Fonterra used in setting the price are practically feasible for an efficient processor. The assumptions also provide incentives for Fonterra to operate efficiently," said Begg.

Fonterra retains significant discretion over how the farm gate milk price is set. The monitoring regime cannot provide certainty over how the farm gate milk price will be set or that it will not change over time. However, the monitoring regime will make Fonterra's process and calculations more transparent.

You can find the final report on the Commission's website here www.comcom.govt.nz/review-of-fonterra-s-farm-gate-milk-price

More like this

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

LCAs tackle false narratives

The quest to measure, report and make sense of the energy that goes into food production has come a long way in the past 25 years.

$3b windfall?

Fonterra's proposed sale of its global consumer business could fetch over $3 billion but not all proceeds will end up in the pockets of farmer shareholders.

Featured

Better animal genetic gain system

A governance group has been formed, following extensive sector consultation, to implement the recommendations from the Industry Working Group's (IWG) final report and is said to be forming a 'road map' for improving New Zealand's animal genetic gain system.

SIDE 2025's new schedule, venue

Annual farmer gathering, the South Island Dairy Event (SIDE), is set to make history as it heads to Timaru for the first time.

Taranaki piggery goes solar

Installing 400 solar panels at their Taranaki piggery and cropping operation will have significant environmental, financial and animal welfare benefits for the Stanley family.

Editorial: Keep FTAs coming

OPINION: The dairy industry will  be a major beneficiary of a new free trade deal between NZ and the Gulf Co-operation Council (GCC).

National

Food charity to hold online auction

Meat the Need, New Zealand’s dedicated charity delivering locally sourced protein meals to food-insecure communities, is launching an online National…

Machinery & Products

An ideal solution for larger farms

Designed specifically for large farms that want to drill with maximum flexibility, efficiency and power, the new Lemken Solitair ST…

Landpower increases its offering

Landpower and the Claas Harvest Centre network will launch the Claas Scorpion and Torion material handling solutions to the market…

» Latest Print Issues Online

The Hound

Leaky waka

OPINION: Was the ASB Economic Weekly throwing shade on Reserve Bank governor Adrian Orr when reporting on his speech in…

Know-it-alls

OPINION: A reader recently had a shot at the various armchair critics that she judged to be more than a…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter