Comm Commission probes base milk price

The Commerce Commission is embarking on a new round of studies into Fonterra's "base milk price", the price it pays to farmers.

The review is part of the Government's milk price monitoring regime, introduced last year as part of dairy industry restructuring leading up to Trading Among Farmers and the listing of the Fonterra Shareholders Fund.

The Commerce Commission is now seeking consultants to extend its review of the base milk price, also known as the "farm gate price".

The commission is required to undertake two such reviews of Fonterra's base milk price-setting in each milking season. It has identified a number of areas where it considers the use of expert advice may assist its review, including analysis of appropriateness of capital costs such as replacement cost assumptions for standard plants and calculations of estimate of average peak capacity of plants.

It also seeks dairy processing expertise, including analysis of production plans, sales mix and cost analysis, expertise of packaging costs and weighted average cost of capital and cost of debt assumptions.

Last August, the commission undertook a "dry run review" of how the dairy giant sets its milk price that showed it was in line with new amendments to industry legislation.

At the time it said: "Fonterra retains significant discretion over how the farm gate milk price is set.

"The monitoring regime cannot provide certainty over how the farm gate milk price will be set or that it will not change over time.

"However the monitoring regime will make Fonterra's process and calculations more transparent."

Sunday Star Times