The MAF review of the domestic milk market in New Zealand is a creamwash – which is to say that if it isn’t a complete whitewash it certainly comes close. It fails to address the central issue of the lack of competition in the domestic market.
In fact it admits it hasn’t even investigated this issue, and therefore ‘cannot comment on whether there is sufficient competition in the domestic market.’
It doesn’t tell us how the price of milk is set. Farmers say they receive less than 30% of the price of milk, but it fails to shed any light on what makes up the other 60%.
These are all valid questions and its time that we had some transparency into how domestic prices are set, and some assurance that supermarkets –or Fonterra- are not putting exorbitant mark-ups on milk.
It does reveal that international price rises are very quick to be passed on, yet very slow to come down domestically, when there is a fall in the price of milk.
The reality is that two main players Fonterra and Goodman Fielder control 95% of the domestic milk market, which means there is effectively no real competition in the domestic milk market. Goodman Fielder, gets all its raw milk from Fonterra, which sets the raw milk price.
And while much is made in the report about how domestic milk prices are ‘intrinsically linked to international prices’ which are trending upwards, it fails to answer the question –why, when milk prices come down globally, the price of milk in New Zealand does not.
It also fails to answer the question, why are milk prices far cheaper in most other countries we trade with?
After pointing out that the ministry doesn’t have the right powers to answer any of the main questions the MAF report then argues against a Commerce Commission inquiry and suggests perhaps a government department may want to further investigate this issue.
After reading this report I personally disagree with MAF’s assertion and consider it is in fact high time for the Commerce Commission to investigate dairy pricing in New Zealand. This investigation needs to look at how retail prices are set.
The Commerce Commission has extensive powers to investigate the consumer dairy markets and its time it exercised this power to answer the many remaining questions left unanswered by MAF’s report.