Feds: Fonterra's lifeline to NZ Dairies has 'severe' price
But the primary sector body tells the Commerce Commission the bid is good for the industry overall.
Fonterra's bid for New Zealand Dairies (in receivership) is good for the industry, Federated Farmers says, but locking farmers into seven-year contracts is "severe".
In a submission to the Commerce Commission, which is considering Fonterra's application, the Feds say they applaud Fonterra's role in picking up from farmers who supply failed business ventures, such as with NZ Organic Dairy Co-operative.
But the submission, from policy adviser Ann Thompson, says Fonterra's lifeline comes at a price.
The co-operative's purchase of the Waimate-based plant is contingent on locking all suppliers into a seven-year contract, paying discounted milksolids prices for four years and mandating farmers buy Fonterra shares.
A seven-year contract is "severe", the submission says.
"It gives Fonterra security that the factory will be used to capacity but given there are a number of options to fill this factory up ... this should not matter."
Fonterra competitor Westland Milk Products, based on the South Island's West Coast, strongly opposed the application in its submission, saying there were "alternative and material bids".
Westland says it would enhance the dairy giant's already dominant market position and "allow them to aggressively target other independent processors".
"One of the major reasons for NZDL's inability to avoid receivership was the ongoing struggle to achieve a viable return for their business after covering the cost of contracting milk with suppliers linked to the Fonterra milk price."
The Westland submission included figures which purported to show Fonterra's market share in Timaru/MacKenzie/Waimate/Waitaki was 81% pre-acquisition, which would rise to 96.5% after the purchase.
Fonterra believes NZ Dairies will struggle to find a new owner quickly if its bid for the company is denied
A commission decision is due by the end of August.
David Williams
Tue, 24 Jul 2012
Tue, 24 Jul 2012
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Feds: Fonterra's lifeline to NZ Dairies has 'severe' price
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