Fonterra sheds light on milk pricing

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Tue, 12 Apr 2011 10:32p.m.

Fonterra has revealed it operates on a 12 percent profit margin on milk

Fonterra has revealed it operates on a 12 percent profit margin on milk

By Ali Ikram

Fonterra has come forward and said what their profit margin is on a two litre bottle of milk.

On Campbell Live tonight, the dairy giant's CEO, Andrew Ferrier, revealed the company had a 12 percent profit margin.

So on a $4.80 bottle of milk, farmers make $1.36, 72 cents goes to the Government in GST and 58 cents goes to Fonterra. That leaves $2.14, but it's not known how much of that goes to the supermarket.

Of New Zealand's two main supermarket chains, Foodstuffs staff couldn't be contacted for comment, while Progressive Enterprises refused - saying it doesn't disclose the gross margins on individual products. However Progressive Enterprises did say that across all product lines and all stores, it makes a profit margin of less than five percent.

The Commerce Commission is yet to announce whether it will formally investigate milk pricing, however Mr Ferrier says his company would co-operate with the inquiry if it went ahead.

"We will give the Commerce Commission our entire milk price manual," he says. "As soon as they explain what they want we need to know what they are getting at in this one."

Any inquiry is also likely to include a look at supermarket pricing, and a decision on whether it'll happen or not is expected within two months.

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Comments

24 Jan 2012 05:00p.m.

Jones wrote:

Interestingly enough, Progressive & Foodstuffs are unavailable for comment. Really now, Fonterra is making less than the government on the milk, and why are the supermarkets left off the hook? Everyone else has disclosed how much they are making so why are these duopolies not having to disclose THEIR profit? After all, these are the same supermarket giants that are ripping off NZers left and right, but the easy scapegoat here is Fonterra. If farmers are getting a good price for their milk, that ONLY helps NZers. Once the govt starts regulating, you will see that the profit will instead go to foreigners instead - so which would you choose? Fonterra is NOT a monopoly but rather a co-op owned by farmers, and the farmers DO deserve to make a living for the hard work they do. They should be respected for doing this job, as I don't know many city people that could last a day doing dairy farming. Most of them are hard working and also care about the environment - I am not speaking for ALL of them, but we should feel lucky that we have grass fed milk in this country. Many countries have factory farm milk, and that is the reason it is so cheap. You get what you pay for. So if you want govt subsidized milk, (cheaper milk) you'd better be careful what you ask for here. Sometimes people take for granted something they are lucky to have in their own country.

14 Apr 2011 01:35p.m.

Mike wrote:

It seams that according to campbell live, the amount going to farmers is all profit and they cows milk themselves, the milk then magically moves from the farm to the factory with some 'hidden' and profitable teleport technology, gets processed and delivered to the supermarket at no cost. Even the supermarkets have no costs to run ...

I mean, TV3's Campbell live, would only need 1 guy with a cheap portable camera to make it and they could hire an actor for just above minimum wage to play 'John' and the rest of them money they take in sponsorship and advertising is pure profit ... and Media works being bailed out is just paying the over paid in the organisation like John ...

Reality is very different. John is on a very large salary, larger than the PM's and a sizable chunk of the $43 mil bailout, yet by itself wouldn't change that mediaworks needs a bailout loan. Yet for his high salary he is the 1st in the country to point out our MP's high salaries and perks? Is a case of the pot and the kettle.

Incidently Fonterra supplies almost all the NZ retail milk, and only make 12% margin on the Fonterra brands and 0% on likes of Meadowfresh. This means that Fonterra makes closer to 6% margin on its supply to the NZ retail milk market.

Some dairies in NZ do sell milk cheaper than supermarkets, but like the current price war in Aus, they do it to get customers in to charge them more for other products. Take someone like pak-n-sav where I shop, not had a special on its house brands of Fonterra milk that I've seen in like the last 5 years, but its current $3.59 for 2 ltrs is the highest price its been too, while every other price is typically the lowest price around.

By the time milk gets to being sold retail the Fonterra profit margin is probably around 3% of its retail price. On the $3.59 house brand 2 ltr I buy, thats probably under 10 cents, more on Anchor brand. No inquiry was needed as journalists if they did their job they could have found all this.

13 Apr 2011 12:16p.m.

come on TV3 wrote:

"On Campbell Live tonight, the dairy giant's CEO, Andrew Ferrier, revealed the company had a 12 percent profit margin."

This does not mean that 12% of the price of milk is Fonterra profit (ie the basis of the "58c goes to Fonterra").

This means that when Fonterra sells milk to suppermarkets (or whoever), 12% of the price is profit, and the other 88% of the price is cost. So you can not calculate the share that "goes to Fonterra" without knowing the wholesale price of milk.

Who does TV3 have working for it? Do these people have any understanding of simple business concepts? Sometimes it seems like the media are the some of the most idiotic people in society.