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Fonterra must supply competitors cheap milk for longer

New Zealand's dairy industry is not competitive enough.That's the message sent by Agriculture Minister David Carter today who announced the government would extend the “pro-competitive” conditions placed on Fonterra. The dairy giant is forced

Liam Baldwin
Tue, 03 Aug 2010

New Zealand’s dairy industry is not competitive enough.

That’s the message sent by Agriculture Minister David Carter today who announced the government would extend the “pro-competitive” conditions placed on Fonterra.

The dairy giant is forced to provide up to a total of 600 million litres of raw milk each year to any company that requests it at a little more than the cost of producing it.

This condition is part of the Dairy Industry Restructuring Act, which was created at the time Fonterra was formed from the merger of New Zealand Dairy Group, Kiwi and the New Zealand Dairy Board.

The DIRA provision that requires Fonterra to supply the milk was to expire based on Fonterra’s reducing marketing share as new players enter the dairy industry in New Zealand.

Currently the threshold would be met in the South Island in May next year where at least 65 million kilograms of milksolids are collected by independent processors, including at least 25 million kilograms of milksolids outside the boundaries of the Westland Regional Council, where the Westland dairy co-op operates.

In the North Island it was estimated the threshold would be met by May 2012 when independent processors collected at least 12.5% of milksolids produced.

“The government has agreed to set new triggers at a Fonterra market share of 80% in the North Island and in the South Island,” Mr Carter said.

This excludes the area covered by Westland.

“This is not about reducing Fonterra’s market share. It is about delivering fair and open competition and innovation to the New Zealand dairy sector,” Mr Carter said.

“At this point, the government is not confident there would be sufficient competition in the dairy industry to protect the long-term interests of farmers and consumers.”

 

Liam Baldwin
Tue, 03 Aug 2010
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Fonterra must supply competitors cheap milk for longer
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