We have conducted a preliminary assessment of the costs and benefits of regulating domestic milk markets and decided in 2011 not to commence a Part 4 inquiry.
Our investigation reviewed a substantial amount of information and interviewed 32 participants in the four levels of the domestic milk market.
At the farm gate – raw milk supplied by farmers
At the farm gate supply level we decided the grounds for intervening under Part 4 is not met. Part 4 provides for the regulation of the supply of goods or services. It was not designed to regulate the acquisition of goods and services in markets where the acquirer has a high degree of market power. For this reason, Part 4 cannot regulate the price and other terms on which Fonterra (or other processors) acquires raw milk from the farm gate.
Alternatively, if we were to consider the problem is one of supply by Fonterra farmers rather than acquisition by Fonterra, we could not recommend regulation under Part 4 because individual farmers do not have market power.
At the factory gate – raw milk supplied by processors/collectors
We concluded there appears to be little or no competition in the market for the factory gate supply of raw milk, and little or no likelihood of a substantial increase in competition in this market.
However, factory gate supply is already regulated under the Dairy Industry Restructuring Act and the Raw Milk Regulations and these are designed to constrain Fonterra's market power.
Wholesale and retail supply
In both the wholesale and retail markets there is more competition than little or no competition (the threshold).