By Dylan Moran
Prime Minister John Key is refuting Fonterra's claims proposed changes to the dairy industry by the Government are a "backward step".
A Ministry of Agriculture review into the price of milk yesterday recommended an increase in the volume of milk Fonterra has to make available to competitors and more transparency when it comes to price setting. But the dairy giant is unhappy about giving away more of its product, arguing the proceeds will go directly offshore.
"The Government's move to require more raw milk to be handed over to increasingly foreign-owned dairy companies operating in New Zealand will impose nearly $200 million of additional costs over the next three years alone and work against our efforts to reduce the price of milk in New Zealand," Fonterra chairman Sir Henry van der Heyden said in a statement yesterday.
Speaking on Firstline this morning Prime Minister John Key took steps to assure the company and its shareholders the moves are beneficial to all involved.
“It’s very important that we have transparency, because Fonterra find themselves primarily in the monopoly position, they control about 95 percent of all milk production in New Zealand, it’s actually in Fonterra’s interests that there is competition in that marketplace,” he says.
Under the Dairy Industry Restructuring Act, the dairy co-operative is currently required to provide 3 percent of its raw milk to rival companies like Synlait and Tatua – around 600 million litres per annum. This will be raised to 5 percent if the changes are brought in, but phased out for Fonterra’s biggest competitors.
A paid margin of 10 cents per kilo supplied by Fonterra would also cease.
The DIRA was originally put forward to encourage competition, and the Government says the mooted changes will lead to more transparency around milk pricing, a positive for New Zealand consumers.
“Although Fonterra's approach is consistent with that expected in a competitive market, lack of transparency remains an issue," said Primary Industries Minister David Carter on Tuesday.
“We’ve actually been overall confident that Fonterra have been doing the right thing, they’ve been working hard to reduce milk prices where they can, they voluntarily had a freeze on domestic milk prices,” he says, adding the international price of milk is reflected in NZ milk prices and the company is not gouging consumers.
The changes will continue to be debated, says Mr Key.
“This is a discussion document, there’s a lot of work to go from here."
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