Fonterra allowed to impose margin charge on milk

Fonterra Cooperative Group will be able to charge a margin of 10 cents a kilogramme over and above the farm gate price for milk it sells to independent dairy companies.

The new formula for regulated milk is to take effect in the 2010-11 season, according to a statement from Agriculture Minister David Carter.

The requirement to supply a capped amount of milk to rivals was put in place when Fonterra was created from the merger of New Zealand's two biggest dairy cooperatives.

The amendment applies to the wholesale or 'default' pricing formula used to determine how much independents pay for milk that Fonterra is obliged to sell them under the Dairy Industry Restructuring Act.

A 2008 review found that for five of the last six seasons, independent processors have been able to access milk under the regulations at a lower price than Fonterra pays its own farmers, which was never the intention of the regulations, said Carter.

The margin per kilogramme of milk solids reflects seasonal changes in the price of the milk, and the certainty of receiving supply throughout the season.

To provide for the change, a bill will be introduced to the House before June a next year, in time for the start of the season.