Fonterra’s competitors will have to pay more for the milk the co-operative has to supply them from the start of next season.
The new formula will price milk at 10 cents above the farm gate price per kilo of milk solids. The farm gate price excludes the value-added component and will be based on the milk component of the Fonterra payout.
Agriculture Minister David Carter said:
“A 2008 review found that for five of the last six seasons, independent processors have been able to access milk under the regulations at a lower price than Fonterra pays its own farmers.
“This was never the intention of the regulations.”
Mr Carter also noted that a margin was necessary to reflect the seasonal changes in the value of milk.
“The 10 cent margin addresses the fact that independent processors can access a square or uniform milk supply rather than a seasonal supply. Given a uniform supply is considerably more valuable to processors than a seasonal one, I consider it fair that the regulations permit a margin to reflect this.”
The Dairy Industry Restructuring Act under which Fonterra was established, requries the co-operative to supply competitors with milk. However, existing legislation allows the independent companies to buy the milk at a lower price than Fonterra has to pay for it. The proposed change, which requires an amendment to the DIRA, will remedy that.
The Minister also plans to consult the dairy sector over the future of regulated milk supply because the DIRA requirements on Fonterra will lapse by 2013. He said a raw milk auction would be considered in the consultation process.