Fonterra internet auctions criticized by Aussies

Reuters

MOO-LAH: Fonterra plans a major expansion of its Edendale milk powder plant in Southland.

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Fonterra's controversial online auction system for milkpowder has been partly blamed by Australian dairy farmers for wiping 40 percent off the commodity's price in the past five months.

Since Fonterra began the monthly internet-based auctions, known as "global dairytrade", in July, the price of whole milkpowder has dropped from $US4330/tonne to $US2585/tonne.

Fonterra is selling around $NZ1 billion of whole milkpowder on the internet trading platform in its first year of auctions, which were announced as a response to increased price volatility in international markets.

Prices for wholemilk powders which had traded in a band of $US2000 to $US2500 a tonne for 15 years shot up to $US5000 last season, but Fonterra missed out on a lot of those windfall profits last summer because much of its production had been committed in advance sales at lower prices.

Dairy Australia, the main industry body on that side of the Tasman, said in its "situation and outlook" update, that buyer activity was now decreasing in the weeks leading up to the auction, because buyers were using the auction as a new pricing basis for trade outside the online platform.

Dairy Australia analyst Joanne Bills said the online auction was changing the way whole milkpowder is traded, rural newspaper the Weekly Times reported.

"Given things are bleak with the economic outlook, people are holding back on purchasing to see what happens with the auction," Ms Bills said.

"Mostly, the price doesn't recover. It is fine to want to have a transparent price system, but why not open at the closing price? If you put a price out there for something in an auction, people see it as a reserve.

"Buyers are waiting to see the price from the auction before they make their purchase."

Ms Bills said Dairy Australia was receiving feedback that the auction was still a factor in keeping prices down.

"With what is happening in China we should be seeing an increase in price because of more demand, but we are not," she said.

Fonterra's global trade managing director Kelvin Wickham said the auction was all about "the international market getting a transparent price" and all global dairytrade was doing was "making it more transparent more quickly".

Mr Wickham also said the auction platform protected shareholders from being exposed to "huge up and down swings and supply and demand issues and possible international governments intervention or support at a time of volatility".

The online auctions have attracted criticism from some Fonterra shareholders, who have claimed the transparency damages the cooperative's ability to influence markets.

The next online auction will be held on December 2.

- NZPA