Final report on Fonterra’s 2016/17 Milk Price Manual

14 December 2016

Commission releases final report on Fonterra’s 2016/17 Milk Price Manual

The Commerce Commission today released its final report on its annual statutory review of Fonterra’s Milk Price Manual for the 2016/17 dairy season.

The Commission’s finding is that the Manual is largely consistent with the purpose of the milk price monitoring regime under the Dairy Industry Restructuring Act 2001 (the Act).

Deputy Chair Sue Begg said that while much of the Manual remains unchanged, the amendment to include sales for whole milk, skim milk and butter milk powders achieved outside the GlobalDairyTrade (GDT) auction platform will require additional analysis in the 2016/17 milk price calculation review.

“Although in principle we consider that including off-GDT prices is not inconsistent with the Act, we have concerns about the lack of detail as to how Fonterra will implement this change. We will take a closer look at this issue next year when we review Fonterra’s milk price calculation at the end of the current dairy season,” Ms Begg said.

The final report recommends that Fonterra revisits its current treatment of lactose costs in the Manual and considers including farmer support costs, though the Commission’s view is both of these components are immaterial to the milk price calculation and do not significantly affect its findings under this review.

The final report also recommends Fonterra discloses the milk price paid on standard terms to increase clarity on how winter milk premiums and other adjustments are treated in the calculation.

“There are a number of issues we will be following up in our review of the base milk price calculation next year, including a focus on the cost of capital calculation Fonterra uses to set the capital charge,” Ms Begg said.

The final report and related information can be found here.

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