Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
The base milk price is what Fonterra pays the farmers who supply them milk.
The commission is required to review Fonterra's calculation of the base milk price each year and 2013/14 is the second time the commission will undertake a calculation review. The review will assess the extent to which Fonterra's approach provides incentives for it to operate efficiently while providing for contestability in the market for purchasing farmers' milk. The scope of the review is to only look at the base milk price, not the retail price that consumers pay for milk.
The commission is proposing to build on last year's review by focusing its analysis this year on the issues outstanding from previous reviews and any areas where Fonterra has changed its approach.
"The big change for this year's review is that Fonterra is proposing to pay less than the milk price calculated under the 2013/14 Milk Price Manual," says Commerce Commission deputy chair Sue Begg.
"Our assessment approach may differ from last year as a result, but we haven't formed any view yet. We will reach a view once Fonterra provides us with its statutory information on 1 July 2014 and we will also seek the views of interested parties at that time," says Begg.
The commission welcomes comments on the process outlined in the paper by Friday 20, June 2014. The draft report will be issued by August 15, 2014, with the final report expected by September 15, 2014.
The process paper can be found on the commission's website at: www.comcom.govt.nz/review-of-milk-price-manual-201415-season
