June 16, 2011

 

New Zealanders might be paying excessively for milk

 

 

New Zealanders could be forking out NZD195 million (US$156.4 million) in excess for milk from Fonterra annually, according to a dairy industry report.

 

The report claimed there is an annual transfer of NZD195 million (US$156.4 million) from Kiwi consumers and other dairy companies to Fonterra farmers because the milk price can be boosted by at least NZD0.15 (US$0.12) per 11.6 litres of milk.

 

It has been provided to the commerce commission, which is conducting an investigation into whether a full milk price-control inquiry is warranted after an industry complaint that Fonterra was artificially inflating the price and public disquiet about the high price of dairy products.

 

The report has also gone to parliament's commerce select committee, which is also considering a probe into domestic market milk pricing.

 

The report by Peter Fraser of Ropere Consulting was commissioned by the following independent milk processors; Open Country Dairy, the country's second biggest dairy company, Synlait Milk and new processing entrant Miraka.

 

Fonterra group strategy and corporate finance general manager Alex Duncan said competitors were complaining Fonterra paid farmers too much for their milk.

 

"They say they cannot make any money and get farmers to supply them. The facts are that Fonterra makes more from a bucket of milk than any of its competitors because it is doing what it was set up to do. It adds value to New Zealand milk and is performing well," Duncan said.

 

The company, which controls 90% of the country's raw milk supply, is obliged to sell up to 600 million litres of milk a year to rivals as a check on its market power.