ComCom u-turn on the price of milk

The Commerce Commission is considering whether to make a price control inquiry into retail milk, as consumers fume over the high cost of the staple food.

The decision to look into possible price control was made after a number of complaints to the commission.

It’s a big change from last Thursday, when chairman Dr Mark Berry said it wouldn’t be making such an inquiry.

Price control inquiries are provided for under Part 4 of the Commerce Act; an inquiry can either be instigated at the minister’s request or by the commission itself.

Commerce Minister Simon Power has not requested the commission initiate a dairy price control inquiry.

“A price control inquiry is undertaken in order to ascertain whether to recommend price regulation of a good or service,” Dr Berry said.

“Goods or services may only be regulated under the Commerce Act if there is little or no competition, and if the benefits of regulation materially outweigh the costs of regulation. We do not undertake such inquiries lightly.”

There are potentially three market levels involved in the production of milk: the supply of raw milk to milk product processors, the manufacture and supply of milk products, and the retailing of milk products.

“The commission intends to review the operation of each of these levels and consider whether it should hold a price control inquiry,” Dr Berry said. “Price control inquiries are rare and are normally confined to highly concentrated markets with very high barriers to entry.

“Normally these markets are natural monopolies such as electricity and gas transmission and distribution networks, ports and telecommunications.”

The commission does not have powers at the end of such inquiries to impose regulated prices. It can only make recommendations to the minister.

The commission says the existence of Dairy Industry Restructuring Act, which requires Fonterra to supply raw milk to its competitors, would be an important consideration in any decision to commence a price control inquiry.

Also important would be whether the increased prices reflect increases in the international price of milk products rather than a lack of competition in New Zealand.

Fonterra recently confirmed its forecast payout of $7.90-$8/kg of milk solids.