Latest Fonterra auction reveals need for independent review

"The latest 9.3 percent fall in the price of Whole Milk Powder (WMP) on Fonterra’s new internet-based auction highlights the need for an independent review of the auction system,” says Lachlan McKenzie, Federated Farmers Dairy spokesperson.

“Commonsense tells us that an auction in a bear market only makes for happy buyers. Fonterra’s auction seems locked in a downward spiral with prices off a jaw-dropping 54 percent since July.

“Supplier-shareholders need to know whether this auction system is extracting maximum value out of WMP and frankly I don’t think it is. Given this rate of decline, will we be paying buyers to take milk powder by this time next year?

“Late last month Federated Farmers asked for a Fonterra-led review of the system to assure supplier-shareholders. This was dismissed at the time. The latest auction result means we must now call for an independent review.

“There is a lot of uncertainty out there and the new auction system is only adding to that uncertainty. Farmers look at the near vertical drop in WMP prices since July 2008 with the new auction system. They then have to brace themselves for an almost certain cut in the forecast milksolids payout later this month.

“That’s why an independent review of the auction system is needed. What shareholder-suppliers want is confidence that Fonterra is acting in their interests. If an independent review found nothing wrong we would be extremely pleased. Then again, a review might throw up alternatives to the auction system that will improve returns back to supplier-shareholders.

“A greater return for your hard effort is what farmers work long hours for,” Mr McKenzie concluded.