10 Jun 2011

MPs consider inquiry into milk prices

7:07 am on 10 June 2011

Parliament's Commerce Select Committee - which is considering holding an inquiry into the price of dairy products - on Thursday heard arguments about the price of milk and how it should be set.

Fonterra is the dominant player in the New Zealand dairy industry, accounting for 90% of raw milk purchased at the farm gate. Its critics claim the co-operative has used its market dominance to drive up the price of milk to the detriment of its competitors and consumers.

Former deputy Prime Minister Wyatt Creech told the committee hearing Fonterra was overpricing milk to the detriment of the the New Zelaand economy and he suggested prices should be set independently.

Mr Creech has been involved in the dairy industry since 2001 and conceded that he could be seen as having a vested interest.

He said, however, that if Fonterra was pricing milk products fairly, it would not be "scared of an independent transparent process".

But a Fonterra spokesperson told Radio New Zealand News that the co-operative already had a transparent system for pricing milk.

Director of supply Kelvin Wickham said Fonterra sold milk on the international market, where the global dairy trade gives evidence of the level at which those products were selling.

Fonterra then took off the cost of producing the product to arrive at the price.

MAF finds no evidence of anti-competitive price setting

Earlier, the Ministry of Agriculture and Forestry today told Parliament's Commerce committee it had found no evidence Fonterra has acted anti-competitively in setting the price of milk.

MAF spokesperson Iain Cossar told the committee that if it could be substantiated that Fonterra was pushing up prices paid to farmers, that would raise concerns about competition.

But he made it clear that was not proven. Mr Cossar said the price is driven by international factors.

The Commerce Commission is investigating milk pricing while MAF is due to report to the Government on the issue in the next couple of months.