Fonterra Brands managing director Peter McClure yesterday said butter and cheese prices in New Zealand increased in April, but since then international prices had dipped and those decreases would flow through to consumers from next month.
In February 2011, he said "we announced a freeze on the wholesale price of fresh milk in New Zealand. At this stage there are no changes planned to fresh-milk prices, but if international milk prices drop significantly we will of course flow these decreases on to consumers."
This follows United States-based economic consulting firm Compass Lexecon saying it had found the way Fonterra set its farm-gate milk price was sound.
Fonterra commissioned the firm to provide an economic evaluation of the competitive environment for dairy processing and also to review the methodology for calculating the milk price paid to Fonterra's farmer-shareholders.
The co-operative has been under pressure from both consumer advocates and rival processors on its milk prices, with calls for more transparency in how it calculates its wholesale prices and for more information on how those prices translate to those paid at the supermarket chillers.
A separate report commissioned by three Fonterra rivals - independent milk processors Open Country Dairy, the country's second-biggest dairy company, Synlait Milk and new processing entrant Miraka - has suggested New Zealanders could be paying $195 million too much for milk from Fonterra each year.
That report - which suggested the way the company's milk price was compiled meant it could be boosted by at least 15c for each 11.6 litres of milk - was provided to the Commerce Commission and Parliament's commerce select committee.
The Commerce Commission has been doing preliminary analysis to determine if a retail milk price control inquiry is required, while three government ministries - Agriculture and Forestry, Economic Development and Treasury - announced last month they had launched a separate inquiry into milk prices.
Yesterday, Fonterra's chief financial officer, Jonathan Mason, said the Compass Lexecon report essentially concluded that the New Zealand environment was fostering competition in the dairy sector and the way Fonterra set its milk price was fair.
Findings of the report, which was provided to Government officials yesterday, said there had been a growth in competition in the New Zealand dairy industry under the Dairy Industry Restructuring Act.
There had been a significant investment in expanded dairy processing capacity in New Zealand by competitors as well as Fonterra since Fonterra was formed. This investment in more efficient plant was driving manufacturing costs down.
Domestic dairy prices in New Zealand have increased less than global prices for dairy products, largely because of the growth of supermarket home brands sold at a discount. (Around 70% of domestic fresh milk sales are home brands.)
Compass Lexecon endorsed that the Fonterra milk price was based on the costs of a notional competitor using efficient processing facilities, rather than Fonterra's actual manufacturing costs.
Fonterra will make additional disclosures "including more information relating to the Fonterra milk price" around September 22, when the co-operative will announce results to July 31.
- Additional reporting NZPA
