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New Zealand satisfied with Fonterra’s milk price calculation

Christian Fernsby ▼ | August 16, 2019
The Commerce Commission in New Zealand has released its draft report on Fonterra’s base milk price calculation for the 2018/19 dairy season.
New Zealand   Fonterra
The Commission is required to review Fonterra’s base milk price calculation at the end of each dairy season under the milk price monitoring regime in the Dairy Industry Restructuring Act (DIRA).

Topics: New Zealand Fonterra milk

The base milk price is the average price that Fonterra pays farmers for raw milk, which was calculated at $6.35 per kilogram of milk solids for the 2018/19 dairy season. The report does not cover the forecast 2019/20 price of $6.25-$7.25 that Fonterra announced in May.

Commission Deputy Chair Sue Begg said this year’s review of the 2018/19 base milk price revealed no new major areas of concern.

“We’re satisfied that Fonterra’s calculation is largely consistent with both the efficiency and contestability purposes of DIRA, though we have been unable to reach a view on administration and overhead costs due to a lack of timely information from Fonterra. We have also retained our 2017/18 view that the asset beta that Fonterra applies is unlikely to be practically feasible,” Ms Begg said.

In March this year Fonterra provided the Commission with an independent expert report on the asset beta it applies.

“We asked economic consulting firm CEPA to review Fonterra’s report. We are of the view that Fonterra’s new report doesn’t raise any new arguments,” Ms Begg said.