Processors who take advantage of the “default” price Fonterra is required to sell milk to them face bigger bills in the future.Agriculture Minister David Carter has today announced a change to the pricing formula for milk the dairy giant is fo
Processors who take advantage of the “default” price Fonterra is required to sell milk to them face bigger bills in the future.
Agriculture Minister David Carter has today announced a change to the pricing formula for milk the dairy giant is forced to provide.
From June 1, the new price will be the farm gate milk price plus an additional 10c a kilogram of milksolids.
Mr Carter said the new price puts an end to Fonterra’s concerns about the underpricing of regulated milk.
Fonterra rival Open Country Cheese now buys just a small component of regulated milk, by chairman Laurie Margrain said he would dispute it was ever underpriced.
He added the increase would just make it more difficult for new players to enter the dairy market in New Zealand, reducing competition and efficiencies.
Mr Carter said a 2008 review found that the current formula allowed independent processors to access milk at a lower price than Fonterra pays its own farmers.
"This was never the intention of the regulations,” he said.
The farm gate price is the average price that Fonterra pays its farmers for milk and excludes any distributions for shareholding.
“The additional 10c… addresses the fact that independent processors can access a uniform milk supply rather than the seasonal supply provided by farmers,” Mr Carter said.
Under the Dairy Industry Restructuring Act that was created at the time Fonterra was created out of the merger of NZ Dairy Group and Kiwi in 2001, the company must make milk available to new rivals in order to allow competition.
Fonterra chairman Sir Henry van der Heyden said the new basis for the milk price would remove some of the benefits other processors have had and create a more level playing field.
“Other processors will still get access to milk, but they will pay a fairer price that reflects what that milk is worth at the farm gate and what we pay our farmers for it,” Sir Henry said.
Fonterra had raised issues about the milk price for some time citing it meant shareholders subsidised other companies to compete with them in other export markets.
