Commerce Commission rules out milk price inquiry

The Commerce Commission says it will not hold an inquiry into milk prices, but is open to hearing arguments.

Consumer groups and the Green Party recently called for a commission investigation into milk prices because of claims that Fonterra had an effective monopoly: the company collects over 90 percent of the milk produced in New Zealand.

At Parliament's commerce select committee this morning, commission chairman Dr Mark Berry said the organisation had an understanding of milk price issues through its work.

"At this time we see no reasonable circumstances to commence a price control inquiry into the price of milk," he told MPs.

"We do have an open mind and I have recently written to Consumer New Zealand, which is behind this campaign, inviting them to come in and have a discussion, make submissions to us.

"We have outlined to them relevant terms of reference that we are going by in relation to any such matters."

Fonterra chief executive Andrew Ferrier yesterday said there was no need for an inquiry. Milk prices were set as part of a normal commercial process and New Zealanders had to get used to being part of the global market, he said.

Fonterra Brands recently froze the wholesale price of its domestic milk until the end of the year - a decision Mr Ferrier said was "good for business".

The cooperative said yesterday that farmers would benefit this season from one of the highest milk payouts seen, a surplus of around $8/kg milksolids which was likely to result in an average of $900,000 being available for each farmer.

Last week the Government received an Agriculture Ministry report warning of continuing high prices driven by overseas dairy prices.

The report showed the retail price of milk rose from $1.69 per litre last June to $1.82 in January, and advised that Government intervention to reduce prices was not a sustainable solution.

Agriculture Minister David Carter said it would be a bad decision for the Government to intervene to lower domestic prices.

"We're a nation that argues passionately for the chance to freely trade to other markets in the world. We would ruin a well-established reputation around an advocate for free trade if we were now attempting to put subsidies in place domestically."

The report said the Government's Dairy Industry Restructuring Act 2001 (Dira), under which Fonterra was required to provide milk to its competitors, had increased competition, but it could not say to what degree.