Fonterra has published a farm gate milk price manual which shows the link between global dairy prices, the amount farmers are paid and the retail price of milk here.
The Statement shows that the 2011 Farmgate Milk Price of $7.60 per kilogram of milksolids (kgMS) was based on revenue of $9.51 per kgMS, less cash and capital costs totaling $1.91 per kgMS.
The 2011 Farmgate Milk Price is $1.50 higher than the previous 2010 Season’s $6.10 per kgMS. This is driven by an increase of $1.56 in net revenue, offset slightly by an increase of 6 cents in costs.
“These figures demonstrate what Fonterra has been saying all along – that the price New Zealand farmers are paid for milk, which in turn flows into retail dairy prices, reflects global prices for dairy commodities,” said Fonterra’s chief financial officer Jonathan Mason.
The 2011 milksolids payment to farmers of $7.60 per kgMS equates to approximately 66 cents per litre of liquid milk.
Over the past two Seasons, net revenues have increased $2.96, or 45%, but in the same period costs have increased by 8 cents or 4% – roughly in line with inflation.
When we export most of our milk, the global market price has a big influence on both the payout to farmers and the retail price.
Green Party MP Sue Kedgley gets the link but says:
“The Milk Price Manual confirms that Fonterra largely bases the domestic price of milk on the global price Fonterra would get by selling milk solids overseas,” said Ms Kedgley.
“We have heard evidence during the Select Committee Milk Price inquiry that the global milk price is hugely inflated by speculators trading in milk.
“This means that New Zealanders ability to pay for a staple food product is being adversely affected by global commodity speculators.
“The Green Party considers that domestic milk prices should not be determined by an inflated global milk price,” said Ms Kedgley.
“We consider a good first step in tackling this issue would be for the domestic price of milk to be set by set by an independent body or Commissioner, not Fonterra.”
Welcome to the socialist republic where the company which produces the milk would have to accept the price set by a commissioner.
The Argentinean government tried to keep the domestic price of beef down by imposing exorbitant taxes on exports. Famers faced with that market signal gave up on cattle and swapped to growing soya which gave them better returns.
Farmers here would make a similar response to an attempt to depress the domestic milk price which, in effect, would mean they were subsidising consumers.
If the Green Party wants to be taken seriously it’s MPs need to get a better grasp of economics.
They could start by looking at the law of supply and demand and the relationship between them and prices.