Commerce Commission looking at investigating dairy prices

The Commerce Commission is doing preliminary work to determine if a price control enquiry into the retail price of milk is warranted.

A number of parties have laid specific complaints with the Commission about the retail price of milk and are calling for the Commission to hold a price control inquiry. . .

“A price control inquiry is undertaken in order to ascertain whether to recommend price regulation of a good or service. Goods or services may only be regulated under the Commerce Act if there is little or no competition, and if the benefits of regulation materially outweigh the costs of regulation. We do not undertake such inquiries lightly,” said Dr Mark Berry, Chair of the Commerce Commission.

There are potentially three market levels involved in the production of milk: the supply of raw milk to milk product processors, the manufacture and supply of milk products, and the retailing of milk products.

“The Commission intends to review the operation of each of these levels and consider whether it should hold a price control inquiry,” said Dr Berry.

The Dairy Industry Restructuring Act aims to ensure that independent processors are able to obtain raw milk from Fonterra at the price which Fonterra pays to its own farmer suppliers. This legislation plays an important role in ensuring contestability in dairy markets. The existence of that legislation would be an important consideration in any decision to commence a price control inquiry. Also important would be whether the increased prices reflect increases in the international price of milk products rather than a lack of competition in New Zealand.

In deciding whether a price control inquiry is warranted the Commission would also need to consider the level of competition between the two major town milk processors and the two major supermarket chains. The Commerce Act requires that there be little or no competition between these parties before regulation can be imposed. Such an inquiry would also need to address the likelihood of potential new competition.

It’s only a week since the Commission said it wouldn’t be looking into the price of milk but the change of mind isn’t a bad thing.

It isn’t launching an investigation, merely doing preliminary work to see if there should be an inquiry.

Dairy products, or alternatives, are important in balanced diets, especially for children, and the Commission’s findings will determine if there should be an inquiry.

Dairy prices are largely influenced by the international market. Higher prices mean we’re getting more for exports which is good for the economy though not so good for people shopping on tight budgets.

Federated Farmers research shows farmers get between 15 and 35% of the retail price of milk which doesn’t look like creaming it to me.

Meanwhile on the other side of the Tasman Coles and Woolworths are facing a Senate inquiry into the milk wars which started in January when Coles dropped its own-brand milk price to $1 a litre.

Hat Tip: Interest.co.nz