Milk price inquiry hangs in balance

Parliament had planned to consider the impact and influence the practices of retailers and wholesalers have on the price of milk. Photo / Greg Bowker

Consumers worried about the price of milk will find out this month whether a parliamentary investigation into the high-profile issue will resume or get the can.

The retail price of milk has become a hot topic, with a Consumer NZ survey last year of 1000 people finding 91 per cent thought they were paying a high price compared with other supermarket staples, while 79 per cent wanted an inquiry into dairy pricing.

Yesterday Nosh grocery stores announced it would drop its price to $1 a litre for the month, saying current margins are too high and challenging competitors and others in the supply chain to come on board.

Last year Parliament's commerce committee, then chaired by Lianne Dalziel, launched a broad-based inquiry with an overarching question of whether people were paying too much for milk and whether the market was operating effectively at all levels.

According to Statistics New Zealand, the average price of a standard two litres of milk in December was $3.67 - up 1.7 per cent on December the previous year but 15.4 per cent higher than in the same month in 2009.

The commerce committee of the new Parliament is chaired by Todd McClay and has until February 29 to decide whether to readopt the inquiry.

"The committee has not had the opportunity to consider the work programme as yet," McClay said.

"We need to consider the advisability of pushing ahead with the inquiry at the time when the consultation and legislation is pending."

Minister for Primary Industries David Carter last month said consultation had opened on the Government's proposed response to reviews of how dairy company Fonterra set its farm-gate milk price - that which is paid to farmers - and the Raw Milk Regulations.

Work by the Ministry of Agriculture and Forestry, with input from economic, regulatory and legal experts, had resulted in a set of preferred options for amendments to the Dairy Industry Restructuring Act and the Raw Milk Regulations, Carter said.

The Commerce Commission was recommended to monitor how Fonterra set its farm-gate price - a proposal which triggered speculation that dairy product retail prices could fall.

However, Carter said the review found Fonterra's approach was consistent with what was expected in a competitive market, although there was an issue with a lack of transparency.

Suggestions also included embedding the farm-gate milk price governance arrangements in legislation and requiring Fonterra to publicly disclose information about how it set the price.

Recommendations on Raw Milk Regulations included an increase in the total quantity of milk available to independent processors to about 5 per cent of Fonterra's milk supply, as allowed for in the act, and a three-season limit for those who sourced raw milk directly from farmers.

Government consultation on the preferred options would be in the form of a draft set of regulations and a draft bill, which would include changes to enable Fonterra's proposed capital structure change to have its farmer owners trade shares among themselves rather than with the company.

Submissions close on February 24.

Parliament had planned to consider:

* Various pricing points for milk from farms to shops and report on any practices that might have the effect of inflating the price.
* Impact and influence the practices of retailers and wholesalers have on the price.
* Impact of international market prices for milk on each of the pricing points.
* Whether the current regulations are adequate