Price Control Inquiry Into Milk Not Warranted

NEW ZEALAND - After a four-month analysis of the domestic milk market, the Commerce Commission has concluded that there us no valid basis for a price control inquiry.

2 August 2011

3 minute read

Oceania

"This outcome should dispel any notion that the New Zealand consumer is being exploited," said Federated Farmers.

“Farmers were highly confident that the Commerce Commission would find out what we knew; the New Zealand consumer is not being ripped off when they buy milk,” says Willy Leferink, Federated Farmers Dairy chairperson.

“What led to calls for the Commerce Commission to look into milk pricing was milk selling in Australia and the United Kingdom at prices not seen for years."

The price control inquiry was undertaken to determine whether the Commission should recommend to the Government that price control should be imposed.

"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.

“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 Dr Mark Berry, Chair of the Commerce Commission.

“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,” said Dr Mark Berry.

Mr Leferink said: "Some people didn’t seem to grasp that Australian supermarkets use milk as a loss leader to win market share. In February, Australian industry sources estimated Coles was underwriting its milk campaign to the tune of AU$300,000 to AU$400,000 a week.

“Two other things were overlooked as well; Australian milk doesn’t attract GST and the exchange rate. When you add these two things to official statistics from the March quarter, Kiwi milk retailed at NZ$3.68 for two litres, but in Australia, the average retail price for two litres of milk ranged from NZ$4.28 to NZ$5.84.

“This is why, in March, we welcomed the Commerce Commission’s preliminary analysis. Everyone had the opportunity to ‘put up’ what evidence they had so that the Commerce Commission could weigh the facts.

“Federated Farmers supplied our research into overseas retail prices and subsidies.

“When you look at ‘non-milk war’ retail pricing from the United States, Canada, Australia, UK, Ireland and France, New Zealand comes in at the lower end of pricing. Our milk doesn’t of course come with the hidden whammy of subsidy.

“I must add there has been another aspect hugely frustrating to many dairy farmers. That is the comparison between soft drinks and fresh milk.

“One is sugar infused cheap fizzy water containing food colouring, while milk is one of the most complete foods available. While milk is all about nutrition, soft drinks have virtually no nutritional value and frankly, seem to throw up some health concerns.

“Milk is a fantastic food and as someone directly involved in its production, I know what’s involved. Everyone works hard to produce some of the best milk on earth and we are open and transparent about it,” Mr Leferink concluded.

Fonterra welcomed the announcement. Fonterra strongly rejects any suggestion that it has used its position in the milk market to prevent or substantially reduce competition, said Chief Financial Officer, Jonathan Mason.