Fonterra keen to make its website a global dairy stock exchange

Fonterra wants to open up its dairy trading platform to other sellers, turning it into a dairy stock exchange.

At the moment only Fonterra can sell its produce through the Global Dairy Trade auction site which has so far attracted about 250 bidders from around the world.

But Fonterra global dairy trade manager Paul Grave said it hoped by opening up its monthly online auction to other sellers there would be more liquidity, a bigger market and more reliable pricing.

"At this point we are making people aware that the option is available."

Grave said it was likely the site would charge other sellers a fee to cover the administration costs but it was too soon to say whether Fonterra would also make money from others selling their produce.

"We would need to discuss all those commercial details with any potential parties."

However, Grave said any charge would be consistent across all sellers.

"Our objective would be to create a marketplace where the rules are the same for all. It would be a kind of a stock exchange."

Grave said the only other dairy trading platform that existed at the moment was the Chicago Mercantile Exchange, but that was focused on trade within the United States.

Grave said Fonterra had wanted to get its own products on to the site first to ensure it worked well before asking others to join it.

The last of its key products, skim milk powder, will begin trading on the exchange in March.

It has traded whole milk powder since the platform's launch in July 2008 and in November added anhydrous milk fat to the site.

"Once we have done that, we can add other suppliers."

The auction site, which received heavy criticism last year by other dairy producers who believed it was exacerbating the fall in dairy prices, has traded more than US$1 billion ($1.36 billion) in whole milk powder since it was launched (see sidebar).

Grave said around 20 per cent of Fonterra's domestic production was now sold via the site.

But it may not be so easy to get others on board.

John Penno, chief executive of South Island dairy company Synlait, which produces 70 million of litres of milk a year, said it wouldn't take part in the exchange.

"Synlait's market development strategy is to directly engage with our customers, building relationships that we expect to lead to higher and higher value product opportunities through time.

"At this point we have no interest in selling though a mechanism such as the global dairy auction.

"However, we do see it may have a place for commodity focused dairy companies."