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24 Nov 2017 2:01
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  •   Home > News > Rural

    ComCom still has questions for Fonterra

    The commerce watchdog is happy with more transparency from Fonterra's off-GlobalDairyTrade sales but still has questions.


    Fonterra
    Fonterra

    The Commerce Commission is pleased with the prospect of greater transparency in Fonterra's off-GlobalDairyTrade sales.

    But it's still unsure whether a component of the dairy company's milk price calculation met the law.

    Friday's final report on Fonterra's base milk price calculation for the 2016-17 season was largely in line with its draft findings in August.

    The commission said it was happy with the cooperative's commitment to greater disclosure, something it's been seeking as the sales channel becomes increasingly important to the cooperative.

    Fonterra agreed to release the cents per kilogram of milk solids of additional off-GDT sales in its milk price statement, the average full season GDT selling prices for each reference product, and definitions of "standard packaging", "specialised plant or technical resources", and "standard product offerings" in its price manual.

    "We welcome Fonterra's commitment to disclose additional information to support this," commissioner Stephen Gale said.

    "However, we will continue to monitor the effectiveness of these disclosures for interested parties."

    But the regulator's report was a qualified pass, in that while the calculation met the requirements of the Dairy Industry Restructuring Act, the commission couldn't be sure Fonterra's asset beta - a component used to set the weighted average cost of capital - satisfied the legislation.

    It wants more information from the dairy company and its rivals.

    Each season the commission is required to review Fonterra's calculation of what it pays farmers for raw milk to ensure the world's biggest dairy exporter isn't abusing its legislated dominance.

    The asset beta is a bone of contention with milk processors because a lower beta leads to a higher price for what Fonterra pays its farmer shareholders to supply raw milk and ultimately what rivals pay to access that pool.

    Fonterra contends comparable businesses have a greater value-add component and aren't as exposed to commodity price risk as it and its suppliers are, which is why it's at odds with the regulator's estimate.

    The commission said the difference between Fonterra's estimate and the average comparable companies was "material" and equal to about 5 cents per kgMS.

    "In order for us to be confident that the departure from the sample mean based on differences in systematic risk between the notional producer and the sample mean is justified, we need better information," the report said.


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