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Calls are mounting for a review of Fonterra's online auction system amid concerns it is helping drive down international dairy prices.
In an open letter to dairy farmers, Open Country Cheese director Wyatt Creech said the auction system had exaggerated the decrease in price, with customers sure they
would be able to buy for less the following month.
Fonterra is the world's biggest dairy exporter and launched its internet-based sales auction called globalDairyTrade in July to set a global reference point for dairy products and try to keep up with volatile markets.
The average price in Fonterra's sixth trading event in December for whole milk powder across all products and contract periods was US$2223 ($4203.50) a tonne.
This was 14 per cent down on the previous auction and 49 per cent down on the first sale in July.
"The price continues to fall as buyers take short positions in the market and stocks build," Creech said.
"It is all too convenient to blame the global economic slowdown and falling demand for all commodities.
"The issue that needs to be addressed is whether or not the auction system itself has contributed to price volatility."
Federated Farmers Dairy spokesperson Lachlan McKenzie said a transparent assessment of the system by Fonterra was the only way ahead.
"Unless Fonterra allows some transparency to the entire system, speculation about it will only mount," McKenzie said.
"This speculation will likely increase if there is a further revision downwards of the revised [Fonterra] payout figure of $6.00 per kg of milksolids."
Auctions in a falling market could hasten a fall in dairy commodities, but whether it was the catalyst was open for debate, McKenzie said.
"If a review found nothing untoward with the auction system, great," he said.
"If it did, then any remedial action would likely increase returns back to farmers, after all, that's why we are in business."
GlobalTrade managing director Kelvin Wickham said there was no evidence the system was putting downward pressure on prices.
"Competitors saying that they believe it's accelerating decline, we've got customers saying they believe its keeping the price up so it's probably about right somewhere in the middle. All it's doing is supplying a flashlight on a price in time."
Any calls to review the system ignored the fact of the market, he said.
"The big issue for us is what's happening out there in the demand, how we're going to restimulate customer demand and when supply responds accordingly."
