Editorial: Milk inquiry must rule on prices quickly

Milk lines the supermarket shelves - but prices are high. Photo / Greg Bowker

Nine out of 10 people believe they are paying far too much for their milk, according to a Consumer New Zealand survey. That near unanimity is reason enough for the parliamentary select committee inquiry that received the green light this week. It also signals this is an issue that should be addressed with some urgency.

Lianne Dalziel, who chairs the commerce committee, wants to be able to make recommendations to Parliament before the general election. That's a tight timetable, but it's one that should be pursued vigorously not in the interests of politicking but of public scrutiny.

After the election, changes to committee membership are likely. Inevitably, this will take some of the sting from its inquiry into milk prices. Any delay would be unfortunate given the extent of public unease.

The issue is also being traversed by an interdepartmental group examining how Fonterra sets the price it pays farmers for their milk. It's due to report this year. But that group's inquiries will be conducted behind closed doors. Nothing will satisfy the sceptics as much as the public forum of a parliamentary inquiry.

To a degree, the two investigations will overlap. That is unavoidable because, increasingly, the farm gate price is shaping up as the crux of the matter. Since 2009, this has been set by Fonterra using a confidential formula. Critics argue the dairy giant sets it higher than it should be to stifle competition, and want the price set by an independent commissioner.

A major focus of the select committee must be the mechanics and methodology by which the price is set. If it finds this is flawed and that Fonterra has undue market dominance, there's an obvious case for a greater degree of neutral input.

This focus has been sharpened by recent Commerce Commission verdicts. It ruled out price controls in the retail and wholesale milk markets, saying enough rivalry existed between the two main supermarket chains in retailing, and between Fonterra and Goodman Fielder in the wholesale market.

But the watchdog said there was "little or no competition" in the market supplying milk to processors, which is dominated by Fonterra. But it considered that it didn't have the authority to look at prices paid to farmers.

Fonterra is, of course, jibbing at these intrusions. But it should remember its privileged position. When formed, Fonterra escaped normal anti-competition scrutiny because of its importance to the economy. Its mission was to carve out a position of international strength. At the same time, internal competition wasn't meant to suffer.

The results of the Consumer NZ survey indicate the vast majority of people don't believe this has happened.

The special position occupied by Fonterra can't make it immune from the closest public scrutiny. People have a right to know how its prices are set, especially when they're convinced they pay too much for milk.

Fonterra partly acknowledged the dissatisfaction in February when it froze the domestic wholesale price of milk to the end of the year. That was never likely to be enough. As a matter of urgency, the select committee must get to the bottom of the matter.