The Commerce Commission has announced its review of domestic milk markets found no valid basis for a price control inquiry under Part 4 of the Commerce Act.
It said it spoke to 32 participants in the domestic milk supply chain, including farmers, processors, wholesalers and retailers with the aim of determining if there was "little or no competition" in the market, or if control of the market was likely to increase.
"The Commission has concluded that 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," the Commission said.
"In both the wholesale and retail markets there is more competition than little or no competition (the threshold)," the Commission said.
“At the retail level there is competition between the two major supermarket chains, dairies, service stations and other retailers. At the wholesale level, it is the competition between Fonterra Brands and Goodman Fielder that exceeds the little or no competition threshold,” said Commerce Commission Chairman Mark Berry.
“Overall our analysis shows that the level of competition, taking into account existing regulation arrangements means that intervention under Part 4 of the Commerce Act is not possible,” he said.
Here's Labour leader Phil Goff on the decision:
(Updated with Goff video, video of Prime Minister John Key on the decision.)
18 Comments
New Zealanders are being done over by Fonterra.
If you go Online to get retail milk prices , you see Sydney retail milk at AU$1.53 / litre (for 3 litre not on special ) and online 1 litre at Pick and Pay in South Africa at ZAR6.59 ( This is equal to NZ$ 1.09/ LITRE ) . Both Australia and South Africa have to import milk because they dont prroduce enough
I bought 3 litres housebarnd milk at Countdown in Grey Lynn last nigh at $1.89/ litre .
Thats an unbeleivable 67% more expensive for a litre of milk in new Zealand than the price in South Africa . And dont give me that bullsh&^ ! about higher input costs , New Zealand cows eat the same amount of grass as Aussie or Japie cows.
Boatman. If you convert the milk price in Aussie to $NZ they are paying NZ $1.91 per litre of milk. The South African dairy industry appears to be in crisis at the moment - they cant get enough people at home to buy milk at a price that they can produce it for. Retail price drops have not stimulated consumption greatly. I think they have a large number of processors including Multi-nationals who will pay as little as they can for product from the farmers, and producers have been getting paid less and some are getting out of production (from what I can gather). Also inputs have risen greatly over the same time. Some are looking at export markets to try and lift their income to sustainable levels. This is a dysfunctional market that has suffered from milk shortages eg. in 2007 after producers left the industry due to low payouts and they ended up having to import product.
Further to mouriefam pointing out the milk price in Aussie to $NZ is NZ $1.91; milk in Australia happens to be GST exempt as well. Applying our GST on top for an 'apples to apples' comparison, would make it actually NZ$2.20.
BTW Australia doesn't import milk as it exports around 40 percent of its production.
As for the UK, based on the current strong Kiwi $, a litre of milk would cost you NZ$1.39 (inclusive of our GST as the UK, like Australia, zero rates milk for VAT). BUT WAIT, UK dairy farmers also got GBP529,849,200 in subsidies for 2009 (the last available stats). Doesn't that make you pay twice over?
French farmers are much better off as they get 9.9 billion euros in subsidies under the CAP. Even then, a price per litre in Paris is more than Karori!
As for South Africa, everyone may find this column informative - http://www.dairyconnect.co.za/dairyMail/issues/jan2011/trends.djhtml
.
Do the Commerce Commision thresholds seem a little weird?
Two companies in a market is enough to be more than little or no competition? You could say one company is no competition and that two is little competition. Once again the Commerce Commision seems completely out of touch with any reasonable persons undersanding of competitive markets. This path leads topeople ignoring them as stupid and irrelevant and corporations seeing that they have a free hand.
The strange thing about the term 'The Free Market' is that Corporations se it as the freedom to set up toll booth style monopolies or semi monopolies. Whereas Adam Smith saw it as freedom from such Toll booths.
More and more of New Zealand is being carved up by Corporations with their hand out and the law on their side.
There is more going on behind the scenes with this than first apparent.
Peter Fraser:
http://podcast.radionz.co.nz/ntn/ntn-20110802-0936-the_price_of_milk-00…
The situation with milk supply margins in the U.K. (for comparison, e.g. milk retails for 60p per litre):
http://www.dairyco.org.uk/media/480202/dairy_supply_2011_web.pdf
The Commerce Commission findings:
http://www.comcom.govt.nz/assets/Dairy/Resources/Milk-markets-Considera…
The Commerce Commission is a toothless, limpid organisation: under Paula Rebstock (previous boss of CC)the Commerce Commission did practically nothing, and Rebstock should be indicted for Criminal Negligence, (instead the old Slouch gets put in charge of the "Welfare Working Group" jackup: they spend more than a year "working on" a report that had already been pre-written by the National/Act parties before the WWG was even formed!). This country deperately needs the NZ Consumers Institute to be reconstructed as a Ministry and with all of it's old Statutory powers. The original symbiotic relationship with the D.S.I.R needs to be re-established, and The Commerce Commission should be completely re-vamped, get someone like David Russell put in charge of it, and be able to ask for Commercial Statutory Law changes from the government, and with a very high chance of these requests being granted (in fact, they should be put to a Parliamentary vote).
You are absolutely correct, Boatman, that the New Zealand public are being swindled blind by Fonterra: the price of milk in New Zealand is nothing short of an outrage, and yet nothing is ever done about it(the limp-wristed do-nothing NZ Commerce Commission has just announced this very hour (2pm, Tuesday, 2nd August) that they are NOT going to conduct even one of their slack-arsed foot-dragging "Inquiries" into the "competitiveness" of the NZ Milk Industry/Retail Prices. The Green Party are furiously angry about this and are bitterly complaining, and every other member of the New Zealand Public should be as well. Bombard Key and the rest of his mottley mob with emails and letters protesting about the heinous Fonterra Rort, and the governments refusal to take action on it.
Boatman @ Swordfish
I see you don't let facts get in the way of a good winge...
Fonterra doesn't set the retail price for milk, the supermarkets do (Progressive & Foodstuffs)
and
of course the independant dairy companies will moan about the farm gate price because they prefer to buy it from Fonterra, turn it into Milk Powder and sell it in Asia. If the NZ liquid milk market is so profitable why aren't they selling milk? - its a hell of a lot cheaper to set up a bottling line than $100m powder factory.
A few months ago before the dollar was soaring to a new high daily Fonterra fixed the price of milk...then the dollar soared and as a result the price of milk should have dropped...but it hasnt because its fixed till Xmas...How much money is Fonterra making on this.?..they tried to look like the good guys by fixing the price before the inquiry and now..
It does make you wonder if they could see the dollar taking off and fixed it so they wouldnt have to lower the milk price....???????????
I just got an update and can confirm that milk is retailing for about 60pence a litre in the UK . That's roughly equal to NZ$1,20 vs the NZ$1,89 we are forced to pay on the domestic NZ market
The fact remains , New Zealanders are being screwed by Fonterra's cozy monopoly which enables it to engage in gouging on the domestic market .
Its actually a national disgrace
Hang on, that's the 'backbone of the economy' your'e talking about, a little more respect, please:
Plus they have provided a lot more than tulips from Amsterdam:
The UK market is governed by domestic prices and PLC's who are governed only by the amount of profit they can get for their shareholders. They have been screwing their dairy farmers for years thus the numbers of farmers they have been losing hand over fist. Farm gate prices were 26.7 pence per litre last year. At 60 pence per litre they are getting 45% of the retail price and that doesn't include the processors charges. Fonterras farmers got 78 c/Litre (incl GST) last year and at $1.89/L they get 40% of the retail price, and that includes the processors charges as they are the processors. Two years ago they only got 44 c/L. Has milk gone up only 34 cents/L since then? I'm not saying thats what was charged cos I don't know. The supermarkets have been creaming it for years as far as I am concerned.
It certainly is a hard one to be ascertained. The UK scenario is a bit of a white hering - supermarkets for years have undertaken a 'loss leader' approach to selling milk and so little comparison can ever be gained from this. On-farm costs of production are acknowledged as being significantly higher than that in NZ.
It then comes to the question of how much does it cost to produce a litre of milk at the farm gate in NZ - at around $3.20/kgms (about 27c/litre) for an efficient producer (not including capital/int/drawings etc) - and what is an acceptable processing and retail margin above this.
As one commentary has alluded to, if it were a rort then why haven't more people got into the game?
On the flip side of the arguement, regulation is most definitely required as Fonterra has a gifted dominant position in the market. We all know that if a market of 8 companies we in time to propose a merger whereby they would have a 90% market share, we know that the CC would not allow it to take place.
My 2 cents worth...
Hello NZ
I worked for Fonterra for 6 years,I owned a milk business in Auckland selling there range of products.The budget brands still sell for $2.50 per 2 litre,most corner dairys have the cheaper brand.The thing is the shop an the vendor make less margin selling cheaper products.
The customer decides on how much milk they can use or need.
Nobody even thinks about the costs in getting the milk to the shop so customers can buy it.
Its a volume game an every bottle needs to be paid for to make a dollar.
The supermarkets could get milk from Aus,this forces fonterra to give them good supply prices.
Supermarkets have talked about producing there own milk supplies.
They are a very powerfull group thats need pandering to,they are the biggest customer.
If you want cheap milk then buy it from the corner dairy.
The money is made by being paid for every litre,with the least time an effort.
The country should be more concerned about getting people back to work an off the welfare than spending all this time trying to train wreck a industry that is the back bone to this country.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.