John Armstrong 's Opinion

John Armstrong is the Herald's chief political commentator

John Armstrong: National wants answers on milk... but not yet

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Photo / file
Photo / file

Mission impossible? The green light may have been given for a long-awaited parliamentary inquiry into the price of milk. But the approval may have come too late for the commerce select committee to come up with any substantive findings before the election.

National will be relieved if that proves to be the case - so much so that Opposition MPs suspect the governing party will do its utmost to drag out the committee's proceedings to ensure it fails to meet its deadline for the tabling of the inquiry's report on October 6.

That is the day Parliament will be dissolved. It is less than two months away. Such inquiries usually take many more months than that to complete.

It is not difficult to see why National has been so reluctant to hold such an inquiry.

It is a matter of the party paying more than just lip service to its rural constituency which - according to Federated Farmers - questions why the dairy industry is being singled out for scrutiny when there are better candidates, such as fiscally lax local authorities.

National's other big worry is that the milk price inquiry will effectively be a verdict on its handling of something which has yet to crystallise into an election issue - the seemingly ever-increasing cost of living.

The inquiry will also be an annoying distraction to National's efforts to paint itself as the most dependable economic management team for uncertain times.

The pressure for an inquiry has been driven by questions over why a commodity produced in such quantity and with such efficiency has become so expensive.

The public is no longer buying the line that the sole driver is prices on the international market.

The pressure for an explanation intensified rather than lessened after the Commerce Commission this month decided an inquiry was not warranted. That may be a sad commentary on the commission's powers. It was hard to tell. Figures in the commission's written decision which might have backed up its ruling were exorcised from public copies, presumably on the grounds of commercial confidentiality.

John Key and Agriculture Minister David Carter then tried to play for time. But their resistance crumbled once it became clear the commerce committee was planning an inquiry.

Act holds the casting vote on that committee. That party may still officially be National's support partner. But it is now exhibiting a much more bolshie attitude as it tries to get out of National's shadow under Don Brash's leadership and rebuild its seriously fractured relationship with voters.

Rather than suffer a mildly embarrassing defeat in the committee, John Key did the smart thing in getting the Cabinet and then the National Party caucus to approve the inquiry in advance.

That made National look like it was buying into the inquiry rather than rejecting it.

Voters seem to hold the view that neither National nor Labour can be blamed for the ever-escalating dollar sums on the supermarket check-out docket. But that may not last.

Labour at least can argue that it is doing something about it by promising to remove GST from fresh fruit and vegetables.

The risk for National is of the inquiry questioning the way Fonterra, as the dominant supplier, has set raw milk prices and, more crucially, finding blatant profiteering by New Zealand's supermarket duopoly on National's watch.

It is unlikely the committee will recommend price controls, something National could not accept.

But it may well recommend more independence and transparency in the way prices are set.

The saving grace for National is that the inquiry's terms of reference will have to be broad to give it the scope of investigation needed to ensure its recommendations will be treated seriously.

That may be to National's advantage in prolonging the inquiry. Because one thing is for sure. The pricing of milk is hideously complex.

This is because in an unregulated market, Fonterra, as the mega-sized farmers' co-operative, has an effective monopoly on the processing of the country's milk production.

Milk is accordingly priced and distributed to other processors using an extensive set of rules and formula to try to create an artificial market.

Not only is this process mind-bogglingly complicated, it is Fonterra which does all the calculations.

The inquiry's terms of reference will also have to be tight enough to extract some meaningful figures from the supermarket chains as to what kind of margin they put on milk bought in their stores.

There is little if any useful information in the public domain about sellers' margins in the wholesale or retail milk markets.

A MAF briefing paper prepared for Carter in March - when the public anguish over soaring milk prices was reaching new highs - reveals his officials saying they could not comment on whether there was enough competition in the domestic milk market because they lacked the powers of investigation to be able to ascertain the state of competition.

It is widely known that farmers receive only 35 per cent or less of the final price charged to consumers. Some reports suggest margins are as high as 80c on a basic supermarket-branded two-litre bottle of standard milk retailing at $3.60 - and presumably even more on brands selling for as much as $4.90.

Such generous margins may explain why the two supermarket chains have not engaged in a price war of the proportions occurring in Australia, where Coles supermarkets have slashed the price of a two-litre bottle to A$2 ($2.50).

The inevitable upshot is that Australian dairy farmers' incomes have been cut because the supermarkets have reduced the price they are willing to pay for milk.

The consumer has been the obvious winner. But on this side of the Tasman, National would be reluctant to put a vital component of the export sector under similar price pressure. More so when that sector is also part of National's political base.

- NZ Herald

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John Armstrong

John Armstrong is the Herald's chief political commentator

Herald political correspondent John Armstrong has been covering politics at a national level for nearly 30 years. Based in the Press Gallery at Parliament in Wellington, John has worked for the Herald since 1987. John was named Best Columnist at the 2013 Canon Media Awards and was a previous winner of Qantas media awards as best political columnist. Prior to joining the Herald, John worked at Parliament for the New Zealand Press Association. A graduate of Canterbury University's journalism school, John began his career in journalism in 1981 on the Christchurch Star. John has a Masters of Arts degree in political science from Canterbury.

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