But it was asked to provide more information on estimates of capital costs.
The commission released its annual report on Fonterra’s base milk price calculation for the 2016-17 season to establish it met the objectives of the Dairy Industry Restructuring Act.
The commission said it could not decide on the feasibility of the estimated asset beta that Fonterra used to determine the weighted average cost of capital (WACC).
There was some justification for the Fonterra asset beta figure of 0.38 for the Notional Producer but it was lower than the sample mean range of 0.48 to 0.52.
“However, at this point we do not consider the evidence is robust enough to support Fonterra’s estimate of 0.38,” the commission said.
It would therefore continue to use the range for future milk price reviews, an intention that effectively left Fonterra with the responsibility to defend its estimate.
The WACC was an important component of milk price setting, a concept familiar to Fonterra farmers through the capacity adjustment in the advance payments schedule.
An asset beta figure is a statistical measure of a company’s risk profile compared to its peers or the market in general. A figure of 1 denotes equivalence, less than one a lower risk.
Fonterra has argued the degree of value-adding by comparable processors was a key input to the asset beta and that value-adding lowered the risk and therefore a lower asset beta for the Notional Producer should be used.
Fonterra argued the degree of value-adding by comparable processors was a key input to the asset beta.
The commission said the difference between Fonterra's estimate and average comparable companies was material and equal to about 5c/kg MS.
Rival processor Open Country Dairy wanted the commission to conclude Fonterra’s estimate was not practically feasible.
“If it does not, the commission risks perpetuating reduced contestability of the dairy market through a base milk price that is inefficient.
“The commission’s draft report systematically reviews the asset beta calculation, explaining its logic at each step.
“Its review shows many of Fonterra’s assertions are neither supported by evidence nor able to be verified by the commission.
“Fonterra have had two years to provide evidence – the obligation on the commission is to now conclude on the matter.”
Open Country said a lower asset beta flowed on to a higher farmgate milk price and therefore restricted the access by independent dairy processors to milk supplies from farmers.
Fonterra was being allowed by the commission to go a further year with “an unjustified asset beta miscalculation, which will impact market contestability”.
The commission said the off-GDT sales figures disclosure was timely and useful.
Fonterra agreed to release the cents per kilogram of milksolids of additional off-GDT sales in its annual milk price statement, the average full season GDT selling prices for each reference product and definitions of standard packaging, specialised plant or technical resources and standard product offerings in its milk price manual.
"We welcome Fonterra’s commitment to disclose additional information to support this," commissioner Stephen Gale said.
"However, we will continue to monitor the effectiveness of these disclosures for interested parties."
