Is the Fonterra worm about to turn?

OPINION: The price of milk has not been far from the headlines in the past year. As international prices for the commodity soared, so did the domestic price, along with the price of cheese. In a country that produces so much of both, it sticks in the craw of many consumers that a two-litre bottle of milk costs much more than a 2.5-litre bottle of Coke, and cheese more than $10 for a 750gm block.

Among the most concerned have been Consumer NZ, which seems to have made cutting the milk price something of a crusade, and Labour MP Lianne Dalziel, who chaired the last parliament's commerce select committee inquiry into milk pricing. Defensive in response has been Fonterra, a co-operative monolith set up in 2001 from the merger of the two remaining dairy co-ops, Kiwi and New Zealand Dairy Group, and the old Dairy Board. The industry's politicians bullied the incoming Labour-led government into allowing the mega-merger to proceed without scrutiny by the Commerce Commission, despite the reservations of its own agriculture minister and the Treasury.

It now seems to believe itself above criticism and oversight. But the worm might be starting to turn. If the Government acts on an officials' report, some of Fonterra's operations will fall within the commission's ambit, though it is important to realise that the proposals the Government is considering won't lower prices to the consumer. Rather, its aim seems to be greater openness about price-setting.

This week, Primary Industries Minister David Carter announced that the Government wants public input into its proposed response to the officials' review of Fonterra's farm-gate, milk-price setting. The co-op is upset; retiring chairman Sir Henry van der Heyden splutters that the proposal will be a backward step that will cost its farmers $200 million over three years. He needs to beware of overstating his case.

Fonterra has had a dream run. Its political connections with Labour meant it was largely left alone to earn billions in export receipts, and less at home. Though the company is vital to the economy, it could not expect that, when prices continued to rise, customers  and their political representatives would not take an interest.

A review of its processes, and the legislation that set it up, is wholly appropriate 10 years down the track, especially given that domestic competition in the fresh-milk market has settled into a cosy duopoly, akin to the one that sells the product through supermarkets. Critics of Fonterra's creation can still argue that domestic consumers would have been better off had Helen Clark and co opted instead for a two-company solution at the outset. But that would not have suited the single-desk mindset of its advocates.

Many Fonterra suppliers will be National Party supporters. They are naive in the extreme, then, to believe that a party supposedly committed to survival of the fittest would not, at some point in the co-op's life, want to revisit a business that prefers its virtual monopoly. The Carter proposals, therefore, deserve serious consideration, not tantrums, from Fonterra's so-called leaders.

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