On-line calculator unbundles milk price

The price of milk and Fonterra’s role in setting it is the subject of on-going debate and will now be investigated by a Select Committee.

The ValueAdd Company has done a lot of the work for them and has beaten them to the unbundling.

They’ve used the information they’ve found to provide  an on-line calculator which shows the cost components of milk production.

The calculations, which are based on some guesstimates, show the retail price includes mark-ups of 12% by Fonterra, 15% by wholesalers and 30% by retailers.

In a media release the company explains its calculations and concludes:

We built up other information from the referenced sources and our calculations came to the somewhat surprising conclusion that for the year ended 30 June 2011, a forecast payment to suppliers for milk of $8.00 per kg of milk solids (not yet finalised) would be $2.73 or 51.7% greater than the figure required to produce a break-even net margin on exported commodity products.

I am not sure why that is surprising.

It has been a particularly good year for commodity prices and the payout to farmers will reflect that and help make up for a couple of seasons ago when most dairy farms posted losses.

One Response to On-line calculator unbundles milk price

  1. Tribeless says:

    I agree with your last paragraph. Some of the 2009 losses were frightening and a wake up call for many who’d not understood how input costs had gone beyond control. The banks have changed, definitely, with how they are dealing with all farm types, especially dairy on the strength of the fright they got from that – which is ultimately good, because the way banks were throwing money at any conversion was insane – and there are some conversions still struggling, so I hope the milk price can stay up for at least another two or three seasons.

    I, too, find the above conclusion ‘surprising’: I’m going to have a good study of the calculator. It’s just a pity NZ doesn’t have the transparent mechanism of the market for obtaining price, though I still believe the method used by Fonterra of pricing off overseas price is sound. And one thing I do know is the answer for the consumer is to constantly move toward competition in the market, it doesn’t lay with the bureaucrats or the politicians.

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