Final Report on Fonterra Milk Price Manual released

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Wellington, December 18, 2017

The Commerce Commission has released its final report on its annual review of Fonterra’s Milk Price Manual for the current dairy season.
The Manual sets out Fonterra’s methodology for calculating the price it will pay farmers per kilogram of milk solids for the current dairy season, ending on May 31, 2018.

The Commerce Commission’s review is part of the Milk Price Monitoring Regime under the Dairy Industry Restructuring Act (DIRA).

Manual consistent

The regime incentivises Fonterra to operate efficiently while providing for contestability in the market for the purchase of farmers’ milk.
Commerce Commission Deputy Chairperson Sue Begg said that the Commission’s conclusion was unchanged from its draft report released in October, which found that the Manual was largely consistent with the purposes of the Milk Monitoring Regime.

“The final report also outlines the process and scope of our upcoming review of the 2017-2018 milk price calculation, including our plans to issue an emerging views paper in March 2018 on the asset beta and our fit-for-purpose review,” she said.
The Commission welcomes feedback on the proposed review process by 5 pm on Thursday, February 1, 2018.
The final report and related information can be found here.
The Purpose of Price Monitoring Regime The purpose of the Milk Price Monitoring Regime is to promote the setting of a farmgate milk price that incentivises Fonterra to operate efficiently while providing for contestability in the market for the purchase of farmers’ milk. The regime exists because, in the absence of a competitive market for the purchase of farmers’ milk, the milk price is set and administered by Fonterra itself.

Transparency assured
The regime also provides transparency of information about how Fonterra sets the farmgate milk price and gives independent processors greater confidence that the price reflects market prices for commodities and efficient costs of collecting and processing milk.
Under the regime, the Commission must review Fonterra’s Milk Price Manual and the base milk price calculation each dairy season. Our report on the base milk price calculation for the 2016-2017 dairy season can be found here.

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