NZPA

Govt plan for 10c/kg margin on milk goes to committee

Wednesday October 28, 07:29 PM

The Government's planned law change to lift the price independent dairy processors have to pay for raw milk from Fonterra has been sent to Parliament's primary production select committee.

The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides for a premium charge of 10c/kg milksolids -- on top of the Fonterra farmgate milk price -- on "statutory milk" which Fonterra farmers have to sell to provide a level playing field for smaller rivals.

The bill, which MPs unanimously gave its first reading today, allows for the margin to be charged from the next dairy season, in 2010-2011.

It also provides for raw milk to be allocated through an auction in later years.

The allocation of up to 5 percent of Fonterra milk at cost price to provide a level playing field for smaller processors was written into enabling legislation for the cooperative a decade ago -- but its farmers have increasingly complained of having their "pockets picked" by the independents.

Agriculture Minister David Carter said a 2008 raw milk review found that for five of the past six seasons, independent processors had been able to access milk at a lower price than Fonterra paid its own farmers.

Fonterra controls about 95 percent of the nation's milk production, which is about 16 billion litres, and the Labour government last year proposed placing limits on the 600 million litres of Fonterra's milk now going to rivals.

Access to raw milk under the Dairy Industry Restructuring Act was a key trade-off that farmers made to avoid Commerce Commission scrutiny of the mega-merger that set up their company. But Fonterra has fought a long-running series of battles in the courts and at the Commerce Commission over who should get the cheap milk, and at what price.

At present smaller companies can take up to 50 million litres a season at a default wholesale price according to a formula set to calculate the cost to Fonterra.

Mr Carter is also planning for auctions of the milk when rising volumes of milkflows trips a sunset clause to end Fonterra's obligations as early as 2013.

At present, the nation's third-biggest milk processor, Goodman Fielder, receives 250 million litres of Fonterra milk -- because it has no farmers of its own -- and it is reported to be expecting 275 million litres in 2010-2011.

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