15 Oct 2013

Milk price formula sparks commission questions

1:52 pm on 15 October 2013

The Commerce Commission is seeking clarification from Fonterra about changes the co-operative has made to its milk price manual.

The manual outlines the method Fonterra uses to calculate the price it pays farmers for the milk they supply.

Under new dairy legislation, the Commerce Commission reviews the milk price and the manual each season to make sure they comply with the regulations in terms of allowing Fonterra to operate efficiently, but also allowing others to compete for milk.

The commission has released a draft report on its review of the manual and finds it largely complies with the statutory requirements.

However, deputy chair Sue Begg says it has raised some concerns about changes in the manual.

The first concern is how repairs and maintentance costs are calculated. The second is to do with the way working capital is treated.

"Our main concern really with the change that Fonterra's made is that they've made the rule a little bit less prescriptive, which gives them more flexibility in how they might apply it."

As a result, the commission is not able to reach a conclusion on whether these aspects of the milk price manual are consistent with the law, she says.

Ms Begg says it will have to wait to see how Fonterra applies the rules in the manual in calculating the price.

She says says Fonterra and others have until the middle of next month to respond to the draft report.

The commission will release the final report in December.