Mr Falconer was responding to news that world dairy prices had tumbled another 14 per cent in the past month to $US2223 ($NZ4170) a tonne during Fonterra's latest Global Trade internet-based auction.
While the auction system was worthwhile during buoyant economic times, it could have a detrimental effect on prices during a downturn, Mr Falconer said.
He cited the example of other industries such as real estate that abandoned the auction system when selling property in an economic downturn.
The online auction system also gave smaller buyers a chance to set the price, which meant larger buyers were also cashing in on the lower prices, he said.
‘‘It's driving the prices down and destroying the value for everybody,'' Mr Falconer said.
‘‘We did vote in Fonterra to have a co-ordinated marketing system, which is really New Zealand versus the world, but when things are a bit difficult as at the present time, worldwide dairy companies need to be ensuring they are not doing anything to destabilise the industry further,'' he said.
‘‘The worse thing that can happen for producers, manufacturers and the commodity purchasers, as well as the consumers, is to have wildly fluctuating prices,'' he said.
‘‘It's no good for anybody.''
Long-time Edendale dairy farmer Geoff Heaps agreed the auction system was probably driving prices down faster than otherwise would have been the case.
‘‘When the prices are below what would be fair and reasonable it's putting the dairy companies under a huge financial strain because stocks aren't selling because everyone is waiting for the prices to go even lower,'' Mr Heaps said.
However, the online auction system could also mean the benefits of an economic upturn could be captured ‘‘straight away'', Mr Heaps said.
Federated Farmers Southland dairy section chairman Rod Pemberton said he was not sure if the online auction system was pushing prices down or whether the drop in prices was just a reflection of the volatile international markets at present.
He pointed to a similar trend in the international oil market.
Oil and milk often experienced similar price trends, he said.
Fonterra corporate communications head Graeme McMillan said the company only sold 10 per cent of its whole-milk powder through the online auction system.
He said there had been claims in the media and from the company's competitors the online auction system had accelerated the current decline in dairy commodity prices.
‘‘This is not true.
The fact is the price is the price and globalDairyTrade [the internet site] has proved to be an efficient way to discover the amount a buyer is prepared to pay on any given day for a product.
‘‘Prices for dairy products not traded on globalDairy-Trade, for example skim-milk powder, have fallen dramatically over the past six months, as have prices for commodities such as oil, corn and soybean oil,'' Mr McMillan said.
The dramatic slowdown in the global economy and subsequent softening in customer demand had driven prices down, not the means by which the product was sold.
‘‘[The site] globalDairy Trade is working well.
It's achieving what it was developed for - enabling price discovery of commodities in an increasingly volatile market,'' he said.
Prices on globalDairyTrade could be used as a reference for the remaining 90 per cent of whole-milk powder product which Fonterra sold through its global network.
The site ‘‘is our first mechanism to enable both Fonterra and our customers to better manage price risk in the face of unprecedented dairy commodity price volatility.
‘‘Customers were asking for help in managing this risk and the new trading platform allows them, along with our suppliers, to have a much clearer idea of market dynamics at any given time,'' he said.