Cabinet has agreed to support a parliamentary select committee inquiry into the price of milk, Prime Minister John Key says.
Labour and the Greens have been pushing for such a probe after the Commerce Commission last week decided not to hold a formal investigation into the price of milk.
Mr Key today said there was "a widespread view" among ministers supporting an inquiry and the issue would now be discussed at the National Party caucus tomorrow.
If other parties supported a select committee inquiry, terms of reference would be drawn up and the committee would call for submissions.
The select committee would consider which aspects of pricing to look into, as well as being guided by the work of an inter-agency probe already underway, to ensure the inquiry was "highly directed at where it makes sense".
Labour leader Phil Goff said the Government had been last to the party on the issue.
"There's an absolute flip-flop because the Government understands that people are reacting against the fact, for example, that GST pushed the price of milk up," he said.
"Finally they got the message when they were the last party standing in opposition to an inquiry."
Mr Goff said an inquiry should go right across the board, from milk prices at the farm gate to the level of competition at retailers.
"New Zealanders deserve to have an answer to the question of why they're paying more for their milk than in most other comparable countries," he said.
Mr Goff ruled out removing the goods and services tax on milk, saying Labour's policy was fully costed and would only remove GST on fresh fruit and vegetables at this point.
Mr Key disagreed the Government had been left behind on the issue, saying it had to consider what to do next after the Commerce Commission announced it would not launch a probe.
One concern was that a select committee inquiry could "cut across" the work of the Government's inter-departmental review of Fonterra's raw milk price.
"We actually have a high degree of confidence in the work that's happening with our agencies at the moment, but we can understand that consumers genuinely may want to see and may feel there is some value in an inquiry, so we're happy to potentially support that," he said.
Mr Key said the market mostly looked competitive and there was quite a significant range of retail milk prices, depending on where consumers shopped.
"On that basis I don't think anyone's got anything to be frightened of having a select committee inquiry. I don't think the large players should be at all concerned about fronting up -- I'm sure they've got a good story to tell.
"But what is important is that consumers feel a degree of confidence."
