30 Apr 2010

Bulk milk price formula changed

6:09 am on 30 April 2010

Fonterra has welcomed a change to the regulations governing milk prices which means it will no longer have to subsidise the cost of milk supplied to competitors.

Because of its dominant position, controlling the bulk of the country's milk production, the co-operative is required by law to supply up to 600 million litres of milk per year to other processors.

The price it charges for this milk is covered by a formula, which has been a bone of contention for Fonterra, because it says it has been forced to supply the milk at a lower price than what it pays its own farmers.

Independent processors do not see it that way, but the Government has accepted the argument and adjusted the price formula.

From June, they will have to pay the going farmgate milk price, plus a margin of 10 cents per kg of milksolids.

Fonterra says the new formula is fairer and means it will not effectively be subsidising the cost to competing dairy processors and exporters.

The biggest buyer of Fonterra milk is Goodman Fielder's New Zealand Dairy Foods company, which has access to up to 250 million litres of milk per year.