3 mins to read

Fonterra farmers want raw milk price lifted

Fonterra farmers critical of regulations which compel them to supply 4 percent of the cooperative's raw milk to processing rivals at cost price say they want higher prices to be charged from June 1."It is very important that the new raw milk pricing

Thu, 11 Feb 2010

Fonterra farmers critical of regulations which compel them to supply 4 percent of the cooperative's raw milk to processing rivals at cost price say they want higher prices to be charged from June 1.

"It is very important that the new raw milk pricing is introduced on June 1 this year, as announced by the Government," Fonterra Shareholders Council chairman Blue Read told the primary production select committee at Parliament today.

Agriculture Minister David Carter last year gave Fonterra a green light to charge its smaller rivals a 10c premium on each kilogram of milksolids from next season, in addition to the Fonterra milk price.

Access to raw milk for smaller processors was required under the Dairy Industry Restructuring Act (DIRA) after Fonterra farmers avoided Commerce Commission scrutiny of the mega-merger that set up their company a decade ago.

It was initially planned for the wholesale milk price to be the price Fonterra pays its own farmers, plus a premium determined by an auction, but the proposed start of auctions from November was called off by Mr Carter last year when he said law changes could not be completed in time.

The legislation is still before Parliament, but the Fonterra farmers said today consultation on it should not be used as an excuse to delay the new pricing rule.

Fonterra and some of its farmers claim that the existing formula used to calculate the cost to Fonterra produces a price less than the real cost. Other critics have said the supplies of raw milk help rival companies keep factories operating economically outside the peak of the dairy season, and that the purchasers should pay for this benefit.

Mr Read said his 10,500 farmer lobby had no objection in principle to an auction -- though they would like to see more details of the proposal -- but the new price must be implemented on June 1.

"It has been clear for a number of years that the price of raw milk under the regulations has been subsidised," he said. "This situation has continued since 2001 and that we are still waiting for new pricing to be implemented.

"It is difficult to reconcile that a portion of our earnings are being siphoned off, largely by corporate entrepreneurs, overseas interests and other New Zealand dairy co-operatives."

The personal cost of the subsidy to an average farmer supplier to Fonterra over the past two years was almost $3000, he estimated. Industry figures show Fonterra farmers earning average payouts over $750,000 and $800,000 in their best recent seasons.

Mr Read said companies gaining from the cheaper raw milk included many with overseas links, including Synlait and its shareholder Mitsui (from Japan); New Zealand Dairies and its shareholder Nutritek (from Russia); Open Country Dairies and its shareholder Olam (from Singapore); Goodman Fielder (from Australia); and Britain's Cadbury.

In New Zealand, an independent cooperative, Tatua had benefited, and Mr Read predicted another, Westland will take regulated milk next season.

"This is not a matter of big Fonterra bullying the little guy," he said.

"The regulations take money from the pockets of dairy farmers and simply give it to other interests.

"It needs to be fixed."

Fonterra director John Monaghan said the big cooperative was not against either regulation or competition, but these things had to be fair to everyone in the industry.

Fonterra supported the concept of a raw milk auction and would support one that was good for the industry as a whole.

"Let's get the (Raw Milk Pricing Methods) Bill passed and then address the auction design," said Mr Monaghan, who also called for the new price to be introduced by June 1.

The 10c surcharge would reflect the extra money farmers were paid for their milk outside the seasonal peak of October-November: "Any suggestion that it is some kind of profit or margin is simply wrong."

Though a number of large processors had complained about the pricing of raw milk, each of them had their own supply from their own farmers, but they continued to take Fonterra milk because it was cheaper.

"Open Country Dairies collected about 850 million litres of milk last year," he said. "It is not credible to suggest that they need 50 million litres of milk from Fonterra."

Thu, 11 Feb 2010
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Fonterra farmers want raw milk price lifted