The competition watchdog Commerce Commission says a «dry run review» of how dairy giant Fonterra sets its farm gate milk price shows it is in line with new amendments to industry legislation.
The commission today released its final report on the dry run review, intended to inform potential investors in Fonterra’s share trading among farmers scheme (TAF) how the milk price monitoring review regime will work in practice.
«Following our consideration of submissions from interested parties and our own analysis, our conclusion is that Fonterra’s setting of the farm gate milk price is not inconsistent with the purpose and principles of the milk price regime set out in the amended Dairy Industry Restructuring Act,» the commission said.
The amended legislation was passed recently. Among other reforms, it provides for the introduction of TAF, which involves offering dividend-carrying, NZX-listed units in Fonterra farmer-owned shares to outside investors. Under the amended legislation, the commission will monitor and report on Fonterra’s farm gate milk price setting.
TAF, part of a capital restructure of New Zealand’s biggest business, is expected to be introduced later this year depending on market conditions.
The commission was asked by the Minister for Primary Industries David Carter to conduct a non-statutory dry run review of Fonterra’s 2011-2012 methodology for setting the farm gate milk price and Fonterra’s application of the methodology.
Fonterra controls 89 per cent of the raw milk market in New Zealand. Its milk price, and how it is set, is of intense interest both to dairy farmers and dairy companies which buy milk from the world’s biggest dairy exporter. A major industry concern about TAF has been the tension expected to result between the price Fonterra pays its farmers for milk and the size of the dividend that will be expected by investors.
The commission’s final report echoes its May draft report, which concluded Fonterra’s farm gate milk price provides for contestability in the farm gate milk market.
«Fonterra retains significant discretion over how the farm gate milk price is set. The monitoring regime cannot provide certainty over how the farm gate milk price will be set or that it will not change over time,» the commission said today.
«However the monitoring regime will make Fonterra’s process and calculations more transparent.»
Source: Stuff
