NZ Dairy Industry: Cheese Processors Status confirmed by high court ruling
March 22nd, 2010
When Fonterra was established, enabling legislation required it provide some raw milk to rival processors as a way to leaven its dominance of the industry. The annual amount is currently capped at 600m litres and MAF predicts the limit will soon be reached. A High Court ruling this month may hasten the process. Grate Kiwi Cheese and Kaimai Cheese have been confirmed as qualifying processors, as the Commerce Commission had previously ruled. Fonterra, which had appealed the commission’s ruling, is now considering a further appeal.
For Fonterra, the situation is less than satisfactory as the raw milk it supplies under the regulations is currently priced below what it pays its own farmers. This creates an arbitrage opportunity, it argues, for anyone who can source the regulated milk. Neither Grate Kiwi nor Kaimai planned to process the milk themselves, preferring to have it transported to Open Country Cheese, another related company.
Fonterra will get something closer to value plus for the milk under changes currently proposed in the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill, which will set the price of regulated milk at the farm-gate milk price plus a seasonal margin of 10c/kg of milk solids.
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