Fonterra has frozen the wholesale domestic price of milk - just a day after the Government ordered a review of whether the local market was working well for consumers.
After a week of negative media coverage about skyrocketing milk prices, Fonterra said yesterday that its consumer products division would freeze wholesale domestic milk prices for the rest of the year.
The retail price of two litres of standard milk has increased 8.7 per cent in the past year, from $3.34 to $3.63, according to Statistics New Zealand.
A stable wholesale price is expected to keep prices in check at supermarkets and dairies.
Chief executive Andrew Ferrier said international milk prices had risen steadily in recent months and Fonterra Brands - the division that produces Anchor and Anlene milk - had already absorbed about $10 million worth of increased costs.
International dairy prices had increased more than 26 per cent during Fonterra's last six biweekly online auctions.
"While these increases have had a big impact on raw material costs for [Fonterra Brands], we have only passed on an average increase of 1.4 per cent to our retail customers, who ultimately set the price paid by New Zealanders," Mr Ferrier said.
Fonterra Brands NZ managing director Peter McClure said the price freeze had been building for a week or two. "I've been working with Fonterra [head office] to recommend this kind of action. Anything else going on at Government level is purely coincidental."
Fonterra's move to freeze prices was not inconsistent with the argument that the cost consumers had to pay reflected the international market, Mr McClure said.
"Signals are that the international prices are just going to go higher and higher at the moment, and we've heard the pain and the difficulty that consumers are having."
Federated Farmers dairy chairman Lachlan McKenzie said he hoped the freeze was a commercial decision. "If it's a political decision that's been forced upon them, then we will be asking some serious questions."
Agriculture Minister David Carter yesterday confirmed that in view of the publicity around rising domestic milk prices, he had asked his officials to ensure legislation "is working satisfactorily in regards to providing competition in domestic milk supplies".
He denied his office had pressured Fonterra into freezing its prices. He had not discussed the issue with the company until it told him of its decision yesterday.
Labour leader Phil Goff said the Government was "desperate" not to see the milk price rise before the election.
He said many New Zealanders were aggrieved they were paying more for milk than consumers in Australia and Britain. A significant reason for that was that food items there were exempt from GST.
Steve Anderson, head of Foodstuffs, which operates New World, Pak'nSave and Four Square outlets, predicted "a more stable milk price, which will be reflected in the price of Fonterra products in our stores".By Adam Bennett Email Adam, Owen Hembry Email Owen