Fonterra: We're not to blame for falls

Fonterra's monthly online milk powder auction Global Dairy Trade is being made the scapegoat by producers who are suffering price declines because of the global recession, not because of the auction, the dairy co-operative says.

The Business Herald yesterday reported criticism of Global Dairy Trade from a number of Fonterra's international rivals who contend the auction has exacerbated falls in international milk powder prices and provoked protectionist policies in the European Union and the United States.

"Clearly we do not concur with the view that Global Dairy Trade is undermining prices," Fonterra's director of portfolio optimisation, Nigel Kuzemko, said yesterday.

"The simple fact of the matter is there's only two people who affect the price - that's the buyer and the seller of a product. The mechanism by which they interact is completely irrelevant. If Global Dairy Trade hadn't been around, prices would have fallen just the same."

Kuzemko said the criticism, which has come from overseas rivals including Denmark's Arla Foods, France's Lactalis and Australia's Murray Goulburn, was "an indicator of change" in the global industry.

"Global Dairy Trade came around when there was a lot of stress in the economic environment. Clearly we've got a global recession which is making things tough for all producers around the world."

European milk producers were facing the difficult task of telling suppliers to expect lower payouts in "a very difficult, politically charged environment" and this was the context of criticism of the Global Dairy Trade mechanism.

Kuzemko said a Ministry of Agriculture and Forestry study had endorsed Fonterra's view that the auction was "a mechanism of transparency" and the co-operative had no plans to suspend or stop the operation.

"We see Global Dairy Trade as a great success."

In a briefing to Agriculture Minister David Carter, MAF said it "strongly supports" the auction, "and is highly sceptical of the suggestions that Global Dairy Trade can be responsible for adverse shifts in international prices".

MAF contended Fonterra, with its 30 per cent share of the 6 per cent of world dairy production which is traded across borders, did not possess undue international market power.

Furthermore the amount of product sold through Global Dairy Trade was "hardly significant enough to cause an overall price movement".

MAF attributed the decline in international prices to several factors including increased domestic milk production in Asia, the EU and US, as a response to formerly high world prices, and increased supply of New Zealand and Australian milk.