Rules requiring Fonterra to supply raw milk to competitors, was costing the country up to $450 million a year, a study commissioned by the co-operative has calculated.
Fonterra is required under the Dairy Industry Restructuring Act (DIRA), which formed the basis of its formation in 2001, to supply up to 600 million litres of milk a year to competing dairy processors, but Fonterra says that meant competitors did not have to actively grow their milk supply.
Fonterra chief executive Andrew Ferrier said competitors were increasingly foreign-owned and used Fonterra-supplied milk to compete in markets.
The study, by the New Zealand Institute of Economic Research (NZIER), calculated the cost of the regulations to Fonterra and the economy at between $150 million and $450 million from impeded competition at the farm gate and loss of economies of scale.
Conversely, if independent processors with their own milk supply lost access to Fonterra milk, the cost to the economy would reduce to between $20 million and $50 million.
"Those processors are increasingly foreign-owned and are competing with Fonterra in overseas markets.
"Much of the milk taken is being used to produce commodity milk powder or bulk cheese for export without any appreciable benefit to New Zealand," he said.
The report forms part of Fonterra's submission on proposed reform of the DIRA rules which the Government will consider next March.
Foreign owners have significant stakes in three of the country's six largest dairy companies.
Bright Dairy has a 51% stake in Synlait Milk, Singapore-owned Olam International is the second largest shareholder in Open Country Dairy and Russian company Nutritek owns 89% of New Zealand Dairies Ltd, but is selling the South Canterbury company.
The other three large dairy companies are all farmer-owned co-operatives.
