Thursday, March 28, 2024

ComCom confirms Fonterra payout ruling

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The Commerce Commission has confirmed its ruling that Fonterra’s 2013-14 base milk price calculation was not consistent with incentives for it to operate efficiently.
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The Commission is required to review Fonterra’s calculation of the base milk price each year as part of the Dairy Industry Restructuring Act’s milk price monitoring regime. The review assesses whether Fonterra’s calculation approach provides incentives for it to operate efficiently and provides for contestability in the market for purchasing farmers’ milk.

In its final report, the commission found the most significant issue was Fonterra’s decision to pay farmers an adjusted price for the 2013-14 season that was less than the milk price calculated under the company’s Milk Price Manual.

The commission’s overall findings are that the way Fonterra is calculating and applying its proposed adjustment to the base milk price is not consistent with incentives for it to operate efficiently; however, the approach is consistent with contestability in the market under the Act.

The Commission’s final conclusions are the same as those in the draft report, with two minor points of difference.

“Our draft finding was that it was probable that if Fonterra did not make its proposed adjustment to the base milk price, the milk price calculation would not be consistent with the contestability provision under the Act. This finding has changed to possible. We changed our view based on additional information received from Fonterra in its submission on our draft report,” Commerce Commission deputy chairwoman Sue Begg said.

“We have also changed our finding regarding energy costs from not-practically-feasible to unable-to-conclude. “This was because Fonterra has provided further information which arguably better supports its approach to calculating energy costs. We intend to further review the information received from Fonterra and the opinion of our independent expert for our 2014/15 calculation review,” Begg said.

The final report and related information can be found on the Commission’s website: www.comcom.govt.nz/review-of-milk-price-calculation-201314-season.

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