Fonterra - unhappy with some of the results of the review

Fonterra - unhappy with some of the results of the review

Fonterra, the New Zealand dairy giant, has said it is "disappointed" at the results of a government review of the country's dairy industry.

It said the proposed changes announced in the Dairy Industry Restructuring Act (DIRA) review will bring some opportunities to the sector but added that it "represents a missed opportunity to better support New Zealand".

The review tightens the new Zealand government's oversight of how Fonterra, a dairy cooperative, sets the price it pays farmers for milk.

Fonterra must appoint a member of the panel that sets its so-called farmgate milk prices who has been nominated by the country's agriculture minister.

It would also limit the discretion Fonterra - the world's largest dairy exporter - has in setting a "key assumption" it uses to calculate the base milk price, according to agriculture minister Damien O'Connor.

The New Zealand competition regulator has previously said the way Fonterra sets the price may have lead to farmers artificially receiving higher farmgate milk prices.

The Government suggested its new rules would keep pace with a changing industry and would also allow Fonterra to differentiate the price it pays out to farmers based on factors such as environmental, animal welfare and sustainability standards used on their farms.

But Fonterra chairman John Monaghan said the playing field is tipped against New Zealand dairy farmers.

In its 66-page submission to the review in February, Fonterra called for a change to milk-collection rules in its home market and made the case for an end to the so-called open-entry rule, whereby it has to collect milk from any shareholding farmers who want to supply it in its collection area.

The review has not concluded whether that should happen.

Monaghan said in his response to the review's findings today (6 June): "Given the significant increase in competition within the New Zealand dairy industry, we're disappointed the Government did not recommend removing the requirement for us to supply our farmers' milk to large, export-focused businesses altogether."

While not specifically applauding the news that Fonterra must appoint an external member to the panel that sets its milk prices, Monaghan said: "All efforts to bring greater pricing transparency into the dairy industry should be encouraged.  

"There's no downside in farmers having clear, consistent information from which to compare processors."