Fonterra welcomes Commerce Commission decision

Fonterra has welcomed today’s Commerce Commission announcement not to hold a price control inquiry into the New Zealand milk market.

Chief Financial Officer Jonathan Mason said Fonterra had always been of the firm view that there was no justification for a price control inquiry or further regulation at any level of the milk market.

Mr Mason said Fonterra’s competitors led the call for a price control inquiry. Those competitors want to force down the amount they pay New Zealand farmers for raw milk.

The way Fonterra paid its farmers for their milk had been endorsed in a recent review by one of the world’s leading experts on competition law economics, Compass Lexecon. Compass Lexecon concluded that, in principle, Fonterra’s Milk Price methodology replicates the farm gate milk price that would arise in a competitive market, and that the Dairy Industry Restructuring Act 2001 has been successful in fostering competition in the New Zealand dairy industry.

“The reality is that competition is thriving in the New Zealand dairy market,” Mr Mason said. “If some processors are not doing as well as Fonterra, that’s because Fonterra makes more from a bucket of milk than them – by doing what it was set up to do. It adds value to New Zealand milk and is performing well, supported by recent world class processing investments and ongoing investments in value-add. As a co-operative owned by Kiwi farmers, all that value flows back into the New Zealand economy.

“Competitors who complain about Fonterra’s Milk Price are also trying to suggest that it is driving up New Zealand retail milk prices. Yet many of these companies choose not to supply the New Zealand domestic market, preferring to export their products because the export market is more profitable. The facts are that retail prices in New Zealand reflect international dairy prices. All around the world, food prices have gone up.”

Fonterra noted that the Commerce Commission intended to review complaints that a move by its Fonterra Brands New Zealand (FBNZ) subsidiary to freeze the price of liquid milk sold to retailers may have breached the Commerce Act.

Mr Mason said FBNZ decided in February to freeze liquid milk prices for the rest of 2011, meaning it would absorb the impact of further commodity price rises.

“It is ironic that a voluntary price freeze could be viewed as breaching legislation which has the ‘benefit of consumers’ at its core.”

Fonterra strongly rejects any suggestion that it has used its position in the milk market to prevent or substantially reduce competition, said Mr Mason.