The independent Westland Cooperative Dairy Company Ltd says dairy company rivals of Fonterra who receive 50 million litres of raw milk at cost price each year should lose that access after three seasons.
And processors such as Open Country Cheese -- the nation's second-biggest milk processor -- and Synlait, who have been receiving the cheaper "statutory" milk for three or more seasons should have the taps turned off on July 31, Westland chief executive Rod Quin said today.
"The regime could end this season," he told the primary production select committee at Parliament.
"Companies who have taken 50 million litres or more for over three seasons, and have their own milk suppliers -- they should cease immediately."
There would be enough interested dairy companies to supply milk to processors without their own suppliers, he said. The market would set an appropriate price.
Last October, the Government sent the committee the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill, which provides for a premium charge of 10c/kg milksolids -- on top of the Fonterra farmgate milk price -- on "statutory milk" which Fonterra farmers have to sell to provide a level playing field for smaller rivals.
The margin is intended to be charged from the next dairy season, in 2010-2011.
The Bill also provides for raw milk to be allocated through an auction in later years when rising volumes of milkflows may trip a sunset clause to end Fonterra's obligations as early as 2013.
The allocation of Fonterra milk at cost price to provide a level playing field for smaller processors was written into enabling legislation for the cooperative over a decade ago -- but its farmers have complained of having their "pockets picked" by the independent processors.
A 2008 raw milk review found that for five of the previous six seasons, independent processors had been able to access milk at a lower price than Fonterra paid its own farmers.
Fonterra controls about 95 percent of the nation's 16 billion litre milkflow, and access to up to 5 percent of that raw milk was a key trade-off farmers made to avoid Commerce Commission scrutiny of the mega-merger which set up their company.
Since then Fonterra has fought a long-running series of battles in the courts and at the Commerce Commission over who should get the cheap milk, and at what price -- tactics which Mr Quin today described as "monopoly behaviour".
At present smaller companies can take up to 50 million litres a season at a default wholesale price according to a formula set to calculate the cost to Fonterra.
Mr Quin told the committee Westland had not sought its own a share of the statutory milk because it was originally told the supply was temporary, and so not commercially sustainable -- but he also told NZPA outside the hearing that the cooperative may yet seek its own allocation, because it would be useful in the "shoulders" at the start and end of the season.
At present, the nation's third-biggest milk processor, Goodman Fielder, receives 250 million litres of Fonterra milk -- because it has no farmers of its own -- and it is reported to be expecting 275 million litres in 2010-2011.
But Mr Quin told the committee Westland supported Fonterra in the view that there is no longer a need for compulsory access to cost-price raw milk, but accepted it as long as the "industrial processing" market was regulated.
In this case there was no need for a precedent-setting reserve price: instead the Government could fix a price based on a rolling quarterly portfolio price calculation set from four-weeks-old data.
But in the long-term the cooperative preferred continued crown monitoring of raw milk to continue only for the milk sold as liquid milk in the domestic market, with the rest of the milkflows for "industrial processing" deregulated.
The present system was contrary to true competition and hurt genuine independent processors such as Westland.
"There is now sufficient competitive access to raw milk, which has been repeatedly proven in recent years with the formation of several new dairy companies," he said.