MP says cost to Kiwis unacceptable as Fonterra, supermarkets point finger at one another.

The supermarkets and Fonterra are blaming one another for the price of milk after Labour's David Shearer asked why the cost had risen over the past two years and Londoners could get cheaper milk than New Zealanders.

Mr Shearer used Consumer Price Index figures which showed the cost of two litres of milk was up from $3.19 in May 2013 to $3.45 last month - an eight per cent increase. He said that was unacceptable given global milk prices had halved since 2011 and farmers were getting much less at the farm gate.

The full statistics show the cost in New Zealand has dropped about 5 per cent over the past year and was well down from 2010 to 2012 when it hovered between $3.60 and $3.70.

However, Mr Shearer said the the cost of milk in Britain and Australia had dropped 16 per cent over the past two years - Australians paid about $2.47 and the British just $1.90 for two litres. Milk is also exempt from the equivalent of GST in those countries.

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Mr Shearer said somebody was "creaming it" from the high prices and it wasn't the farmers, who got just 38c a litre last year, down from 73c a year earlier. "It seems perverse that Coca Cola is now more affordable than fresh milk."

Mr Shearer's comments coincide with the start of the Commerce Commission's review of competition in the dairy industry. In 2011, the commission held a review of the domestic milk market, but ruled out intervention saying there was enough regulation and competition at retail level not to require price controls.

Prime Minister John Key said milk prices always fluctuated and supermarkets in Britain and Australia had artificially low prices because of price wars. "For the most part there's a big range in what you pay for milk but it's a pretty competitive market." He said he would encourage children to drink milk rather than fizzy drink, but said if that argument was about price then water was free from the tap. He did not believe a sugar tax was warranted.

A survey by NZME staff of several supermarkets in Wellington, Christchurch and Auckland showed the price of a two-litre bottle ranged from $3.09 for Budget brand to $4.85 for Anchor milk in Christchurch. The cost was higher at service stations and dairies, ranging from $3.90 to $5.80.

A spokeswoman for Foodstuffs said the prices were a direct reflection of the wholesale price charged by the supermarkets' suppliers. She said the cost for Budget brand milk at supermarkets such as Pak'nSave and New World ranged from $3.09 to $3.19, similar to 2013.

Tim Deane, managing director Fonterra Brands, said it was up to supermarkets how much consumers paid for milk. International commodity prices were only one of the factors it took into account when setting wholesale prices. Other factors included transport, energy, packaging, taxes, and compliance.

"Fonterra wants dairy nutrition to be affordable and is conscious consumers' disposable incomes don't fluctuate as much as commodity prices.

"Our pricing will be continuing to strike a balance between supporting affordable milk for Kiwi families to buy and achieving sustainable returns on our products."

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Fonterra would not disclose wholesale prices, saying it was commercially sensitive.