17 Sep 2009

Smaller dairy processors 'not getting milk cheaply'

4:13 pm on 17 September 2009

One of the independent dairy processors that buys milk from Fonterra challenges the view that it is getting cheap milk.

Because Fonterra controls most of the country's milk supply, it is obliged by law to provide its competitors with a specified amount of milk at a regulated price.

The Government has announced that from next year, companies buying the milk will have to pay more because they have been getting it at a lower price than Fonterra pays its own farmers.

The new formula will be based on the price Fonterra pays for the milk at the farm gate, plus a margin of 10 cents a kilogram of milk solids.

Federated Farmers dairy chair Lachlan McKenzie says at present Fonterra suppliers are effectively subsidising the co-op's competitors, and the new system removes that distortion.

The chief executive of one of the independent processors, Open Country Dairy, disputes the view that it is getting the milk cheaply.

Mark Fankhauser says the price it is paying through the season is based on Fonterra's final forecast payout to its farmers, which it doesn't give them until after the season has ended.

He thinks companies buying milk from Fonterra should only have to pay the advance rate the co-operative is paying its farmers, currently $2.90 a kilo, compared with its final forecast of $4.55, and then top up the price at the end of the season when farmers get paid.

Mr Fankhauser does not think the proposed 10c margin is justified either.

Open Country will buy 40 million to 50 million litres of the 850 million litres it expects to process this season.