«Massive profits yet Fonterra still increases milk prices to everyday New Zealanders – no wonder fizzy drinks are the norm for our kids as the prices never increase,» one customer, who did not want to be named, said.
Really? Kids are being given fizzy drinks because milk is too expensive?
OK, I have to admit that I don’t do a lot of the shopping in our household, and we do get the milk for our house straight from the vat as we are on a dairy farm, but I thought I’d better do a bit of research to see if it’s true.
Looking at the Countdown website, 2 litres of milk is $3.37, or $1.69 a litre. Coke is $3.99 for 2.25 litres, or $1.77 per litre. So milk is cheaper than Coke, but I don’t know why anyone would compare the two, given they are at the opposite ends of the spectrum in terms of nutritional value. Milk is a complete food, soft drinks are sugar, water, artificial flavourings and colourings. Hardly a valid comparison.
Yes, I’ve quoted the Homebrand price instead of Fonterra’s Anchor range which is $2.20 a litre, but guess what, it’s the same stuff from the same cows, probably gets bottled at the same plant.
If the price is the issue, then don’t pay a premium for a brand, it’s as simple as that. And no-one is being forced to buy their milk at the supermarket, some of the dairies in my town have signs outside advertising 2 x 2 litres milk for $5.80, which comes out at $1.45 a litre. Pretty good value if you ask me.
«But in Australia they can get milk for $1 a litre.» Yes they can, and the Australian dairy industry is almost stuffed because of it. The supermarkets have had a price war and use milk as a loss leader to entice consumers into their stores. Plus in Australia there is no GST on food. If you added 15 per cent GST to their $1 a litre it’s getting close to our $1.45 NZ price if you buy from the dairy.
«How can milk be more expensive than petrol?» I hear this all the time, but I don’t know why people make this comparison. It has never seemed valid to me. I don’t think it’s a good idea to pour petrol onto your Weet-bix. Maybe if you pulled up at the milk service station and bought 60 litres of bulk milk pumped straight into your own container with no need for refrigeration, milk would be cheaper than petrol. Oh hang on, milk is cheaper than petrol.
«The people of Saudi Arabia don’t pay world prices for their petrol, so why should we pay world prices for milk when we produce so much of it?» The oilfields of Saudi Arabia are owned by the Saudi government which legislates and subsidises to make petrol cheap for their citizens. Dairy farms in New Zealand are owned privately and like any business need to make a profit. Having said that, Fonterra does provide Anchor milk to 140,000 Kiwi kids every day through the Milk for Schools programme. It costs the average Fonterra farmer $2000 a year to do this, but I think it’s a great initiative and provides a nutritious product to those who need it most.
PROFITS
«Fonterra is making outrageous profits and are just screwing us». Last year Fonterra made a profit of $834 million. Sounds like a lot of money, doesn’t it? What a lot of people don’t realise is that the profit is paid out to farmer shareholders as a dividend and forms part of the payout. Last year the $834m equated to a 45c dividend on our shares which are worth around $6, so a 7.5 per cent return.
I don’t think that’s outrageous and, really, the profit should be higher. And it’s not like the profit was made just from selling milk in New Zealand. Fonterra exports product to over 100 countries so a lot of the profit is coming here from all around the world. That’s got to be a good thing. Contrast that with the $4.2 billion profit made by our four biggest banks, all of which heads off to their Australian owners.
If you still think Fonterra is making outrageous profits, then you can buy units in the Shareholder’s Fund and share in those profits yourself through dividends. They are available to anyone. There’s no guarantees though. Two years ago the dividend was just 10c.
«Fonterra is a monopoly and sets the milk price» Not quite. Fonterra collects and processes about 85 per cent of the milk in New Zealand. It is required by law to supply milk at cost to other processors to help ensure competition.
It’s interesting that a number of overseas-owned companies have taken advantage of this, setting up major processing plants in New Zealand, but exporting all of the dairy products they produce. If the retail milk price is so high in New Zealand and there is so much profit to be made, why are these companies exporting all of their products?
So milk or fizzy drink? I know what I would be giving my kids. And I know which one is better value for money.
Marc Gascoigne is a Cambridge dairy farmer and welcomes feedback at marcmaria1@gmail.com
Source: Stuff
Link: http://www.stuff.co.nz/business/farming/opinion/88242096/six-milk-price-myths-exploded