Editorial: School milk plan raises pricing issue

Fonterra chief executive Theo Spierings drinks milk with the kids. Photo / Sarah Ivey

Quite rightly, Fonterra is winning applause for its Milk for Kiwis scheme, which will start with a trial in Northland schools next year and could be introduced all over the country in 2013. As the company says, milk is an important building block for good nutrition. Too many children are growing up without experiencing its goodness.

If fully implemented, this project will help to address that in a manner similar to the government scheme under which, between 1937 and 1967, half a pint of milk was given to every schoolchild daily.

What must also be addressed, however, is why this ambulance at the bottom of the cliff is necessary. Clearly, too many children are not drinking milk in their homes. In some instances, this may be a result of poor choices by parents. But it is also apparent that what was once a regular part of the diet has become too expensive for some poor households.

Not only that but, according to a Consumer New Zealand survey, nine out of 10 people believe they are paying too much for milk compared with other staples. The upshot is that milk consumption in New Zealand has been declining by 1 to 2 per cent a year.

Obviously, it is in Fonterra's interests to turn this around. The Milk for Kiwis scheme is a way of introducing milk to many children who, in turn, may influence their parents' shopping habits.

This year, Fonterra further indicated its awareness of the affordability issue by freezing the domestic wholesale price of milk until the end of this month. Its chief executive, Theo Spierings, says that it is also "exploring a range of options to turn around the consumption decline by making milk more consistently affordable and will report back in the first quarter of next year".

Fonterra undoubtedly hopes such moves will help to placate what it believes is people's perception that milk prices are too high. But that is unlikely given the extent of the public dissatisfaction. This makes it important that a parliamentary select committee inquiry is restarted as soon as possible. The commerce committee, chaired by Lianne Dalziel, began investigating the price of milk in August but failed to make recommendations before the general election. Inevitably, the break has drawn some of the sting from its work. But the inquiry must continue, and with an urgency befitting the issue.

What appears to be the nub of the problem - how Fonterra sets the price it pays farmers for their milk - is also being examined by an interdepartmental group. Its report is due by the end of this month. But if its work on the mechanics and methodology of the confidential formula used by the company since 2009 informs that of the parliamentary committee, it should not supplant it. The public would be best served by its representatives determining whether the price paid to farmers is set higher than it should be to stifle competition, and if this should be fixed by having it set by an independent commissioner.

According to Statistics New Zealand, the average price for two litres of standard milk last month was $3.67 - 1.4 per cent and 16.1 per cent higher than the same time last year and in 2009, respectively. Consumer NZ, for its part, says there has been a combined retail price increase of 50 per cent in the past five years for two litres of milk, 500g of butter and 1kg of cheese. Such statistics can only worsen if Fonterra ends its freeze on the domestic wholesale price of milk.

As much as the company puts the blame for this on rising international dairy prices, it is clear a continuation of the trend is untenable. It is time the parliamentary committee got to the bottom of the matter and recommended remedies.