Fonterra’s plants get about 40% of their processing energy from coal but the co-op won’t commission any new coal boilers as part of plans to cut emissions by 30% across all manufacturing operations by 2030 and achieve net zero emissions by 2050.
So the commission wants to know how Fonterra’s the plans have or will be factored into the milk price calculation and over what time.
The regulator is required to review Fonterra’s base milk price calculation at the end of each dairy season. It was $6.35 a kilogram of milksolids for the 2018-19 dairy season.
Fonterra said the calculation takes its mix of energy sources by site and as alternative energy sources are used on its commodity ingredients sites, the milk price model will begin using those sources at the same time and in the same proportions.
The commission said while no changes to investments in alternative energy warrant an adjustment to the 2018-19 price, any investments in the future will have to be considered in further detail.
It noted increasing public concern about the significant impact of dairy activities on the environment, which is also driving better management of processing effluent and water use as well as changes in energy use.
Fonterra has installed a water-recycling innovation at its Pahiatua plant that will save about a half a million litres of water a day, the commission said.
Also driving changes to plant and processing costs are more stringent resource consent requirements.
Fonterra said the milk price calculation does not explicitly factor in any environmental costs but the costs of obtaining resources consents are part of the firm’s capital costs.
It also said the 2020 financial year is a reset year for capital costs and it will therefore be revisiting the allowances as part of that process.
In recent years Fonterra has typically spent about $1-$1.5 million a year renewing two to five consents related to water take, discharge to air and wastewater, the commission said.
The annual cost has doubled over the past 10 years. Fonterra has estimated the cost of renewing an individual consent can vary from $40,000 to $1m.
The commission said this year’s draft review of Fonterra’s 2018-19 milk price calculation revealed no new areas of concern.
However, it lacked the necessary information to reach a view on administration and overhead costs and still thinks Fonterra’s asset beta is too high.
A beta is a measure of the volatility, or systemic risk, of a security or a portfolio in comparison to the market as a whole. A beta of less than 1 suggests the security is theoretically less volatile than the wider market, meaning a lower asset beta allows a higher milk price to be paid.
“We’re satisfied that Fonterra’s calculation is largely consistent with both the efficiency and contestability purposes of DIRA though we have been unable to reach a view on administration and overhead costs due to a lack of timely information from Fonterra,” deputy chairwoman Sue Begg said. – BusinessDesk
