The Commerce Commission has released its draft report on its statutory review of Fonterra’s Milk Price Manual for the 2015/16 dairy season. The Manual sets out how Fonterra will calculate how much it will pay dairy farmers for raw milk.

The Commission is required to report annually on the extent to which the Manual promotes the setting of a base milk price that provides incentives for Fonterra to operate efficiently, while providing for contestability in the market for the purchase of milk from farmers.

Deputy Chair Sue Begg said the Commission’s draft finding is that the 2015/16 Manual is largely consistent with the purpose of the milk price monitoring regime under the Dairy Industry Restructuring Act 2001 (the Act).

“While much of the Manual remains unchanged from last year, the amendments Fonterra has made this year improve the Manual’s consistency with the overall purpose of the regime. We are pleased with the steady progress being made year on year,” Ms Begg said.

“Our draft report encourages Fonterra to continue improving the clarity of the rules in the Manual and its disclosures on their use so interested parties can better see how Fonterra would interpret and apply them.”

Additionally, the draft report recommends that Fonterra consider some further issues, such as how the financing costs of interest-free loans made to farmers should be treated in calculating the base milk price and whether winter milk premiums should be explicitly provided for in the Manual.

The Commission will further review how Fonterra applies the Manual when it assesses the 2015/16 base milk price calculation at the end of the current dairy season.

The Commission welcomes comments on the draft report by 16 November 2015. The final report will be published by 15 December 2015.

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