Commerce Commission looking at investigating dairy prices

March 31, 2011

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

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Good for economy hard for consumers

January 19, 2011

The increase in the global price of milk which has been welcomed by dairy farmers isn’t so welcome to consumers who are showing resistance to domestic price rises for dairy products.

The price of milk has become too rich for many households’ taste with dairy giant Fonterra reporting a “dramatic” fall in sales.

The price of a two litre bottle of milk has jumped 15c to $4.30-$4.50 after two price rises in the past five months, the result of strong global dairy commodity prices.

Fonterra Brands managing director Peter McClure, an industry veteran, says it is the highest milk price he can remember, and has led to a fall of about 1 per cent in milk sales in the past three months.

This is more significant than it sounds given milk sales have been growing solidly at 2-3 per cent for five years, boosted by Kiwis’ love affair with coffee, he says.

McClure has seen shoppers shy away from buying milk during previous price spikes but says sales have recovered quickly in the past. This time the decline is continuing.

How long will it be before someone suggests subsidising domestic prices and/or asks farmers to take less for milk supplied for domestic consumption?

Funny how no-one wants to subsidise the farmers when the price falls – and I hasten to add I’m among them.

Increased prices for producers are very good for the economy in the medium to long term. Although that will be cold comfort to people struggling to afford dairy produce in the short term.


Feds talk straight to Obama

May 24, 2009

Federated Farmers aren’t mucking about with their response to the USA’s reintroduction of export subsidies for dairy products.

In a media release headlined US dairy subsidies a potential catostrophe they start by inviting President Obama to New Zealand to explain why his administration has decided to subsidise 92,000 tonnes of American dairy products destined for international markets.

“I cannot express the anger I feel about today’s decision,” says Philip York, Federated Farmers economics and commerce spokesperson.

“The precedent this sets is actually worse than the European Union’s (EU) decision in January to go down the same path.

“Federated Farmers had respected American restraint from not retaliating against the EU. That has all been thrown away on the compost heap that is the US dairy lobby.

“The US dairy lobby is more interested in protecting subsidies than in exporting on free market principles. The fact President Obama caved into their demands is a genuine shock. I honestly thought the age of pork barrel politics had passed but I’m sadly mistaken.

“What’s worse is that this comes at a time when international prices for dairy commodities had started to stabilise.

“Now, from left field, comes this ludicrous decision which takes the world to the edge of trade anarchy.

“The World Trade Organisation needs to get to Washington and Brussels urgently to discuss this with the EU and the Obama administration. I know Don Nicolson, the President of Federated Farmers, will be raising this at next month’s meeting of the Cairns Group.

“This could easily set off a domino effect as smaller economies rush to follow the irresponsible ‘example’ being set by the EU and the United States. Tariffs and tit-for-tat trade barriers could depress international prices and trade volumes before spreading to other trade categories.

“The world is back to five minutes to midnight for an all out trade war and President Obama needs to get his hand off the trigger,” Mr York concluded.

That’s a very direct message.

I don’t think the chances of Obama hearing it are very high and the chances of him heeding it are even lower but no-one can accuse Feds of taking a half-hearted approach to their fight for free trade.

Hat Tip: SOLO


But they did it first

May 23, 2009

The USA is reintroducing export subsidies for dairy products in a tit for tat response to the EU which reintroduced subsidies earlier in the year.

But they did it first is no way to win an argument, but that’s the excuse they’re using.

US Agriculture Secretary Tom Vilsack says the move is in direct response to the European Union’s introduction earlier this year of export subsidies. It will allow American exporters to compete fairly, he says.

His idea of fair isn’t quite the same as mine.

At the same time, Mr Vilsack says the Obama administration remains strongly committed to a pledge at the recent G20 summit to refrain from protectionism.

He says every attempt will be made to minimise the impact on countries that do not subsidise their dairy producers.

If he wants to give up his day job he could find another writing ads for Tui.

Trade Minister Tim Groser isn’t impressed.

Dairy farmers the world over are under pressure, but this is a short-sighted response when the international dairy market has recently been showing signs of stabilising. The decision is a setback, and will be damaging to world markets.

“Export subsidy assistance will have a relatively small effect on income for US dairy farmers, and may even prove counterproductive by creating uncertainty and depressing international dairy market prices. Unsubsidised producers, like those from New Zealand, will bear the cost of these trade-distorting measures.

“I am disappointed that the United States should have followed the poor example set by the European Union when it reintroduced export subsidies in January.

“While the US and the EU may consider they are both acting within their current WTO commitments, this sends a very negative signal to other WTO members. . .

Groser says it’s not whether these measures are legal but the bad example the EU and USA are setting.

 “The long term solution is clear: we need to complete the WTO Doha Round in order to secure the elimination of agricultural export subsidies. In the meantime, restraint is needed, not a resumption of retaliatory subsidisation.

The recession will provide excuses for increased protectionism which will do little, if anything, to help producers, increase costs for taxpayers and consumers and hamper the eventual recovery.


We’re the rock stars Johnny Rotten

May 19, 2009

Federated Farmers reckon New Zealand farmers are economic rock stars and  want to invite Johnny Lydon (aka Johnny Rotten)  to visit so they can show him just how good dairy produce is when it comes from free range cows.

This invitation has been mooted because the former member of the Sex Pistols has been fronting advertisements In Britain urging people to buy British butter because  – he says – it’s better.

“Never mind the butter, it’s the quality of the milk what counts,” says Willy Leferink, Federated Farmers Dairy vice-chairperson.

“While all milk may contain the same basic properties, kiwi cows are in a league of their own.

“Grazing outdoors on GM free grass and natural winter feed makes for happy cows and fantastic quality milk.  This milk is crafted into quality butter and other dairy products and the only thing holding us back in the UK, is the European Union’s ridiculous tariff barriers.  

“One of our senior staff members, David Broome, lived in the UK for seven years.  He tried Country Life Butter, once, and described it to me in colourful terms that Johnny Rotten would understand.

“David said only hand crafted but expensive British butter matched New Zealand butter for quality. The difference being that New Zealand butter can readily be found by British consumers in their local supermarket and convenience stores.

“New Zealand butter and dairy products, like our wine, is a taste revelation.

“New Zealand’s climate and quality pasture means we are in an agricultural sweet spot.  British consumers literally taste freedom when they eat New Zealand butter.

“While I’d like to think of dairy farmers as being the rock stars of the New Zealand economy, I’d be pleased to host that old punk rocker, John Lyndon, on my farm.

While he’s not casting aspersions on our butter, jokes aside, all primary producers need to be very careful about what we say about produce from other countries.

We may compete in the market but we should be allies in the battle against unscientific claims on production methods and quality. There’s more than enough unfounded claims based on emotion making life difficult for farmers and manufacturers of primary produce without people in the industry adding to it.

Attempts to woo consumers by putting them off competitors’ products might backfire and put them off those products regardless of where they come from.

There is one good thing about the ad, though. It might show anyone who still thinks a Buy Kiwi-Made campaign is a good the idea that it’s not, because we can’t say it’s better for us to buy local while exhorting people elsewhere to buy our exports.


Ag commodities down but will lead 2009 rebound

December 4, 2008

The ANZ Commodities Price Index fell 7.2% in November, contributing to a 21% fall in four months.

Prices for dairy products fell 12% and have almost halved from their record levels a year ago. Prices for pelts tumbled 41%, the biggest decline among products tracked in the index. Beef, wool, lumber and aluminium all fell more than 10%. Seafood prices dropped for the first time in 18 months, sliding 0.6%. Lamb rose 4.3% and kiwifruit gained 0.3%.

Producers were cushioned from the slide in commodity prices by the weakening New Zealand dollar and the ANZ New Zealand Dollar Commodity Price Index was down only 1.8% in the latest month.

“Although the currency softened further in the month, it failed to match the drop in value of the commodities that we monitor,” ANZ economist Steve Edwards said in a statement. “It is clear that a weaker currency is acting as a buffer to falling commodity prices.”

Prices in yesterday’s on-line auction by Fonterra continued to slide with an average price of $4203.50 ($US2223) a tonne, 14% lower than last month’s auction and a fall of 49% since July.

Fonterra commercial director of GlobalTrade Guy Roper said the economic crisis had resulted in a significant drop in the demand for dairy commodities and a continued decline in prices had been expected.

“There will continue to be downward pressure on prices, until either the supply of product declines, or buyers have confidence that the global economic situation will improve,” Roper said.

Fonterra has been criticised for its auction which some feel is leading the market down. The Bull Pen disucsses that here.

However, the news isn’t all bad. Stock & Land  expects agricultural commodities to rebound next year.

After the dust settles from the sell off across commodities triggered by the global financial crisis, agricultural commodities will benefit from a secure demand outlook and tight supplies to outperform metals and oil in 2009.
Regardless of the gloomy macroeconomic outlook people still need to eat; therefore agricultural commodities will be more resilient during the economic downturn.

“Demand for agricultural commodities tends to be less elastic, less responsive to economic factors, more responsive to population,” said Lawrence Eagles, a commodities analyst at J.P. Morgan.

 

That’s encouraging because the MAF Briefing to Incoming Ministers warns the outlook is uncertain:

 

Over the next 20 years, New Zealand’s food and fibre producing capability will become increasingly important. Globally, rising population and economic growth is expected to increase demand for agricultural and forestry products. At the same time land and resources, such as freshwater, available for food and fibre production worldwide is likely to decline.

Despite this favourable long-term outlook for New Zealand’s primary production sectors, our industries, environment and broader society face a complex set of challenges to reap future opportunities. These challenges are exacerbated by the current global financial crisis that continues to unfold with uncertain impacts and duration.

Added to that is the growing threat of drought.

The contrast between irrigated and dryland in North Otago increases by the day, showing how badly we need rain and most of the east coast of both islands is similarly desperate for rain.

 


Trade deficit 22.8%

August 26, 2008

last month’s trade balance deficit  of 22.8%, wasn’t unexpected. 

The July deficits have been more than 20% for the last four years. New Zealand hasn’t had a July trade surplus since 1991.

Merchandise exports were valued at $3.4 billion in July 2008, up $781 million (29.6 percent) on July 2007, while merchandise imports were up $754 (21.9 percent) to $4.2 billion over the same period, Statistics New Zealand said today.

The summer and autumn drought is blamed for the fall in seasonally adjusted dairy volumes in the first half of the year. Although that has been partly offset by the high world price for dairy produce and a $266 million increase in crude oil exports.

Exports for milk powder butter and cheese were $192 million higher than in July 2007.

Petroleum and products (up $292 million), led by automotive diesel and crude oil, was the biggest increase for imports compared with July 2007. The next largest increase came from mechanical machinery and equipment, up $82 million, spread over several commodities including production equipment for use in New Zealand’s gas fields, irrigation and spray equipment, and computers.

Dairy prices which helped exports will be responsible for some of these imports too. Farmers have taken the opportunity improved returns provide to upgrade machinery and undertake more irrigation development. But the increased production from all of this will eventually feed through to more exports


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