Farmers who have complained independent processors have been getting "cheap" raw milk from Fonterra today hailed the Government's law changes to boost the prices charged for the milk.
"Independent processors have received an unfair advantage because they've been able to buy this milk at a cheap price, when it suits them," said Federated Farmers dairy chairman Lachlan McKenzie.
"This has allowed them to maximise their output by only taking milk when they needed it."
Fonterra is required by law to supply a set amount of milk to its competitors to provided a "level playing field" in the wake of the giant cooperative escaping Commerce Commission scrutiny of the mega-merger which created it a decade ago.
But Agriculture Minister David Carter said today a 2008 review found the current formula for setting the price of that milk allowed independent processors to get milk at a lower price than Fonterra paid its own farmers.
He said this was never the intention of the regulations.
A key issue was the fact that independent processors could access a uniform milk supply, rather than having to cope with the seasonal fluctuations in supply.
"Given a uniform supply is considerably more valuable to processors than a seasonal one, it is fair that the regulations permit a margin to reflect this."
The new price - to take effect from the beginning of the new dairy season in June - will be the farm gate milk price plus 10c/kg of milksolids.
Fonterra has welcomed the change.
And Mr McKenzie said the new pricing method would also allow independent milk processors to make good business decisions based on a fair price.
"For practically the whole time this legislation has been in place, regulated raw milk has been underpriced because of a faulty formula," he said. This had cost Fonterra's farmers money.
"This will also stop independent milk processors, who are owned by overseas investors, from getting cheap milk," Mr McKenzie said.
"Some of these firms have based their whole business model on getting milk, not from farmers at the farm gate, but from Fonterra at a cheap price. This is particularly unfair."
It was not in the national interest for such companies to source cheap milk for export, when most of the profits would also go offshore.
