3 Aug 2011

Government will consider inquiry into milk

12:56 pm on 3 August 2011

The National-led Government will consider early next week whether to support a select committee inquiry into the price of milk.

The Commerce Commission on Tuesday decided there were no grounds to hold a full inquiry into the retail and wholesale price of milk to establish whether there is a need for price controls.

But two Government inquiries are under way into the price Fonterra pays its farmers, and what it charges its competitors for raw milk.

And the commission says it may revisit those issues, depending on the outcome of the reviews.

Prime Minister John Key says he would not want to cut across the existing reviews and the issue of a select committee inquiry will be discussed at Monday's Cabinet meeting and then at National's caucus meeting on Tuesday.

He says a committee could call any party involved in the milk industry.

The Green Party has said it will push for Parliament's Commerce Select Committee to launch a full inquiry.

Fonterra wholesale pricing sound - Norgate

Former Fonterra chief executive Craig Norgate believes Government inquiries into wholesale milk prices will vindicate the dairy giant.

Mr Norgate says complaints about Fonterra's prices are being driven by its competitors, who are struggling with soaring international milk prices.

He believes the Government inquiries into what Fonterra pays its farmers and the price it charges competitors for raw milk will find the company's pricing methods are sound.

Federated Farmers' dairy section chair Willy Leferink says the raw milk price at the farm gate is determined by world markets.

He says farmers would would welcome any investigation into the setting of that price, and have nothing to hide.

Mr Leferink cites as evidence of this a report, commissioned by Fonterra from international competition specialist Compass Lexecon, that concluded the way Fonterra calculates its farmgate milk price is fair.

The director of Christchurch-based independent processor Klondike Fresh Ltd, Graeme Brown, says there needs to be more transparency in how the farm gate milk price is set.

He says he buys milk from Fonterra which monopolises the farm gate price and then competes with him at retail level.

"They have greater resources and so they can cross-subsidise some of their business, so they can offer pricing to our customers that we cannot match.

"We find ourselves competing against our supplier, yet the supplier has all the information at their fingertips about how they can compete against us," he says.

Mr Brown says New Zealanders are drinking less milk than ever and one contributing factor may be the high cost.

A professor of farm management and agribusiness at Lincoln University, Keith Woodford, says whether the system is fair will be revealed when Fonterra makes public details of how it reaches the price.

Minister won't be drawn on price issue

The Ministry of Agriculture (MAF) is carrying out the review into the raw milk regulations, which set the conditions for Fonterra supplying milk to other processors.

In addition, MAF, the Ministry of Economic Development and the Treasury are together looking at how Fonterra sets its farm gate milk price.

MAF says if that review shows that there is a problem it will recommend potential options to the Agriculture Minister David Carter.

Mr Carter hopes that exercise will be finished before the end of the year but at this stage will not voice an opinion on whether he thinks there's an issue with Fonterra's pricing structure.

However he says ensuring the farm gate milk price is correct is important.

"It is important we know it is correct because it affects the efficiency of the dairy industry and it affects matters like how much land comes out of sheep and beef production into dairying," he says.