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Commission releases final report on annual review of Fonterra’s Milk Price Manual

15 December 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 31 May 2018. Our review is part of the milk price monitoring regime under the Dairy Industry Restructuring Act (DIRA). The regime incentivises Fonterra to operate efficiently while providing for contestability in the market for the purchase of farmers’ milk. 

“The Commission’s conclusion is unchanged from its draft report released in October, which finds the manual is largely consistent with the purposes of the milk monitoring regime,” Commission Deputy Chair Sue Begg said. 

“The final report also outlines the process and scope of our upcoming review of the 2017/18 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.”

The Commission welcomes feedback on the proposed review process by 5pm on Thursday 1 February 2018.

See the final report and related information.

Background

Purpose of the milk price monitoring regime

The purpose of the milk price monitoring regime is to promote the setting of a farm gate 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.

The regime also provides transparency of information about how Fonterra sets the farm gate 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. See our report on the base milk price calculation for the 2016/17 dairy season.