September 26, 2011

 

Fonterra discloses formula for milk prices

 

 

Fonterra has been forced to disclose its formula for setting the price it pays producers for milk.

 

Previously, the pricing model was fully known only to a select few government officials.

 

Fonterra's price-setting method is under scrutiny by a select committee inquiry after a public and industry backlash against high dairy prices in supermarkets.

 

Consumer NZ chief executive Sue Chetwin said it had taken "a big consumer push and a number of inquiries for Fonterra to release the manual".

 

Dairy products had become unaffordable for many, she said.

 

Green Party MP Sue Kedgley said New Zealanders' ability to pay for staple foods was being adversely affected by global commodity speculators.

 

"A good first step would be for the domestic price of milk to be set by an independent body or commissioner, not Fonterra," said Kedgley. 

 

Fonterra chief financial officer Jonathan Mason said the figures in the manual demonstrated "that the price New Zealand farmers are paid for milk, which in turn flows into retail dairy prices, reflects global prices for dairy commodities".

 

As Fonterra controls 90% of New Zealand's raw milk, the price it pays its farmers becomes the default price for all milk.

 

The 78-page manual outlines that the farm-gate price is set by calculating what Fonterra would earn if all its milk was made into milk powder and its by-products, less costs, as well as factoring in depreciation and an "appropriate return on investment".

Dairy Workers Union national secretary James Ritchie said the manual's release would improve transparency. Supermarkets should follow and reveal their pricing margins on milk, he said.