June 10, 2011


New Zealand's third milk inquiry might be inevitable



A third official investigation regarding how dairy giant Fonterra sets the price of milk for New Zealand could be unavoidable after the chairman of Parliament's commerce select committee said an account by government officials left her with more questions than answers.


Competition watchdog the Commerce Commission is due to report any day on whether a full price control inquiry into retail milk is warranted after official complaints, including an allegation from the processing industry that Fonterra is artificially inflating the price of milk.


Ministry of Agriculture officials revealed yesterday (Jun 9) during a briefing to the commerce select committee that they would continue to examine the way Fonterra sets milk prices, but had found no evidence of anti-competitive behaviour by New Zealand's biggest company.


The select committee had called for the briefing by agriculture and economic development ministry officials in response to public and industry unrest about steep milk price rises.


Committee chairman Lianne Dalziel said she was certainly leaning to some further inquiry.


"There is not a question in my mind there are questions that require further exploration," Dalziel said.


"What I was surprised about was that in the briefing, we got officials did not raise any flags with respect to the complaints which are obviously well known in the public arena.


"The question I had was that the Dairy Industry Restructuring Act legislation which governs Fonterra was passed 10 years ago, so why are we not looking at the public policy issue around the almost-monopoly provider being the price setter?


"Essentially what came out of this line of questioning was that there had only been complaints in the last couple of years. My question then was, what happened in the last couple of years that has meant people have complained about pricing, and I do not know the answer. I did not feel they had responded to that at all. That is where I think we are going to have to do further exploration."


Dalziel said clarification was needed on whether an inquiry by the select committee would cross over with the commission's investigation.


There was a full turnout of independent dairy product manufacturers at the briefing, including critics of Fonterra's pricing dominance, Open Country Dairy, Synlait, Tatua and Miraka.


Open Country co-founder Wyatt Creech, a former National Party deputy prime minister, said milk in New Zealand was unjustifiably expensive and urged parliament to launch an inquiry into Fonterra's price setting method.


Ad Feedback Fonterra director of supplier and external relations, Kelvin Wickham, said it was hard to know what another inquiry could add to the current investigations.


No evidence had been found of anti-competitive behaviour by Fonterra. Its pricing models had been under scrutiny for the 10 years of its existence and no-one had yet been able to come up with a better, more robust model, Wickham said.

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