22 Jul 2011

Fonterra says milk pricing formula confirmed as fair

12:53 pm on 22 July 2011

Fonterra says it has independent backing for the way it sets the price it pays for milk.

The Commerce Commission has undertaken a preliminary inquiry into the price of milk and the Ministry of Agriculture is doing a separate investigation after complaints from independent processors about Fonterra's milk pricing arrangements.

Under the milk regulations, the co-operative is obliged to supply a certain percentage of its milk to competitors at a regulated price, which allows a set margin above its farm gate price.

Fonterra says it commissioned an internationally renowned competition expert, Compass Lexecon, to assess the competitive environment for dairy processing in New Zealand and review the way it calculates its farmgate milk price.

Chief financial officer Jonathan Mason says the price paid to farmers reflects international dairy commodity prices, less the costs to produce and export those commodities.

And he says Compass Lexecon has concluded that the way it sets the milk price, is fair.

Fonterra says domestic dairy prices in New Zealand have increased less than global prices for dairy products, largely because of the growth of supermarket home brands, sold at a discount.

It says about 70% of domestic fresh milk sales in New Zealand are now home brands.