New formula for regulated milk pricing

Agriculture Minister David Carter has announced amendments to the pricing formula for regulated milk, to take effect in the 2010/11 season.

The amendments will apply to the wholesale or ‘default' pricing formula used to determine how much independent milk processors pay for milk that Fonterra is obliged to provide them under the Dairy Industry Restructuring Act (DIRA).

Mr Carter says that the new formula will price milk at the farm gate price plus 10 cents per kilogram of milk solids. The farm gate price will be the milk component of the Fonterra payout, this excludes the value-add component.

"A 2008 review found that for five of the last six seasons, independent processors have been able to access milk under the regulations at a lower price than Fonterra pays its own farmers.

"This was never the intention of the regulations."

Mr Carter also noted that a margin was necessary to reflect the seasonal changes in the value of milk.

"The 10 cent margin addresses the fact that independent processors can access a square or uniform milk supply rather than a seasonal supply. Given a uniform supply is considerably more valuable to processors than a seasonal one, I consider it fair that the regulations permit a margin to reflect this."

Introducing the new formula will require a legislative amendment to the DIRA.

"A Bill will be introduced into the House this year and must be completed before 1 June next year, the start of the 2010/11 season."

Mr Carter has also announced plans to consult the dairy sector over the future of regulated milk supply, with DIRA requirements on Fonterra set to lapse as early as 2013, or before.

A raw milk auction, which was suspended for the 2010/11 earlier this year, would be considered in the context of the consultation process, Mr Carter said.