Fonterra, supermarkets focus of milk price probe

Fonterra is being asked by the Commerce Commission to hand over its 'Milk Price Manual' and the way it calculates the raw milk price. Photo / Mark Mitchell

As part of a probe into dairy prices, the Commerce Commission is asking Fonterra to hand over information about how it sets raw milk prices.

The Commission is also looking into the practices of the two big supermarket chains, which dominate the New Zealand milk retail market.

Terms of reference for the Commerce Commission have just been released, which show where the regulator will look as it decides whether a full price inquiry is justified.

Fonterra said it intended to cooperate fully with the commission's preliminary assessment.

"Fonterra will provide the Commerce Commission will all appropriate information and co-operation to ensure it can conduct an efficient preliminary assessment of whether or not to conduct a dairy price control inquiry," a spokesperson for the company said.

A report on whether to launch such an inquiry will be finished in around two months.

"In order to look at ultimate retail prices, prices in the upstream markets must also be considered. An inflated milk price at this market level couild afffect the price of milk at other functional levels of the market," say the terms of reference.

"The Commission has also received complaints about how Fonterra sets the farm gate milk prices, which utlimately affects other processors on two fronts: the regulated price is reliant on it; and other processors compete with that price when trying to attract farmer suppliers."

Fonterra collects about 89 per cent of raw milk in New Zealand, says the Commission.

"The complaints allege that Fonterra is setting a notional milk price, which is anti-competitive in nature," it says.

"We request that Fonterra voluntarily supplies a copy of the Milk Price Manual and its calculations, to allow an assessment of the farm gate price."

When it comes to the retail price of milk, the Commerce Commission says it will make inquiries from the two main supermarket chains - Foodstuffs and Progressive Enterprises.

"Any competition concerns at this functional level of the market would manifest themselves in the prices for all products sold in supermarkets, not just milk".

Fonterra's general counsel, David Matthews, said last month an inquiry was not needed.

"We are of the firm view that there is competition in the market," he said.

But Federated Farmers welcomed the announcement of a price probe and said an investigation would "help end the speculation over milk prices".

On February 18, Fonterra announced that it would freeze wholesale domestic milk prices for the rest of the year. The supermarket chains soon followed with their own freezes.

The commission's disclosure that it was investigating whether it needs to carry out a full inquiry into the retail prices charged for milk came less than a week after its chairman Mark Berry told a parliamentary select committee that it would not hold an inquiry into milk prices but would hear arguments.

-NZ HERALD ONLINE