Fonterra Co-operative Group's method of setting its farm-gate milk price has been given an initial, conditional tick of approval by the Commerce Commission in a dry run of its proposed oversight role set out in the Dairy Industry Restructuring Amendment Bill.
Fonterra's setting of the farm-gate milk price "is not inconsistent with the purpose and principles of the milk price regime set out in the DIRA Bill", Sue Begg, the regulator's deputy chairwoman, said in a statement released with the 111-page report.
"Most of Fonterra's current assumptions appear to be both practically feasible for Fonterra to achieve and reasonable for efficient processors to replicate" and they "will provide incentives for Fonterra to operate efficiently", Begg said.
The monitoring regime could not provide certainty over how the milk price would be set or how it might change over time and Fonterra "retains significant discretion".
The way the farm-gate milk price is set is key to the changes planned for Fonterra, including Trading Among Farmers (TAF), because it is one of two variables in the payout to farmers - the milk price and the distributable profit.