March 10, 2011

 

EU dairy giants wary of Fonterra's invitation

 

 

Europe's dairy giants responded cautiously to an invitation from Fonterra to sell products through its controversial internet auctions.

 

Arla Foods, the Swedish-Danish co-operative behind Lurpak butter, said it had examined the rules of engagement for transforming the globalDairyTrade auctions into a market for selling dairy products beyond Fonterra's.

 

"But at this point in time we have not made any commitment," according to a spokesperson.

 

Dutch peer, FrieslandCampina, said it had not yet decided whether to sell through globalDairyTrade. However, it added it would like to remain connected with the developments.

 

"FrieslandCampina is constantly looking for new ways to improve the value of our products and new market approaches," the group said. "The ideas of the platform, multi-seller and multi-product are part of that."

 

The comments followed Fonterra's announcement that the two European groups had been among a panel consulted over the extension of globalDairyTrade to rivals as a sales platform.

 

US-based DairyAmerica, and Australia's Murray Goulburn have also had input into draft rules for opening up the auctions, Fonterra said, although no company has yet committed to offer product.

 

The move comes nearly three years after globalDairyTrade was launched, amid some criticism that the auctions, now held twice monthly, would further depress prices at a time when the market was already crumbling.

 

John Kaczor at the Milk Producers Council, a North American industry group, in a report last month noted some persistent objections about whether these auction prices represent a fair picture of product value.

 

However, Kaczor added that the auction reflects international buyers to an extent, current decisions to accept future deliveries at committed prices, perhaps it could be considered one of the more reliable indications of international supply and demand.

 

He also noted the decision by New Zealand's stock exchange operator, NZX, to use globalDairyTrade prices as the basis for cash settling newly-launched dairy futures contract.

 

GlobalDairyTrade, which trades some 600,000 tonnes of Fonterra products a year, has run up sales of US$3.2 billion since it was launched in July 2008.

 

The auction has more than 300 registered bidders, in 58 countries.