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Tuesday, August 02, 2011

Price of milk policy

[***!WARNING: Pic at end of this post not work safe!***]
This morning the Commerce Commission explained why there's no need for them to launch an inquiry into milk price fixing. They don't reckon it's needed, neither did Peter Fraser on RNZ. The market is working they reckon. They are the few who do. Here's how ComCom brushed aside comparisons with Australia:

12. Why is milk cheaper overseas / in Australia?

[...] An analysis of overseas milk prices is not necessary in order to reach a decision whether regulation under Part 4 could apply, so we have not done so as part of this review.

However, it is apparent that New Zealand supermarkets have not priced milk as aggressively to date as in Australia. This may reflect that competition in the supply of groceries from supermarkets is less intense than in Australia. Alternatively, it may suggest that the competition dynamic is different, and competition focuses on other products or aspects of their offering.

So don't worry what the international pricing is like - or even the pricing in Australia - it's all a bit complicated and stuff so they're going to ignore it. Even when Fonterra itself says publicly that it uses international prices to set local prices? (see below). Yip, really. It may not be necessary in order to reach a decision, but it would be bloody helpful though wouldn't it - too helpful?

Some relief came in July when Fonterra announced it would drop some other dairy prices:

Fonterra Brands Managing Director Peter McClure said: “Butter and cheese prices in New Zealand increased in April, however, since then international prices have dipped and we will see these decreases flow through to consumers from next month.

“In February 2011, we announced a freeze on the wholesale price of fresh milk in New Zealand.

“At this stage there are no changes planned to fresh milk prices, but if international milk prices drop significantly we will of course flow these decreases onto consumers.”

Now please note Fonterra are quite clear that international prices are the relevant - the only relevant factor - in their pricing decision and that these prices "flow through" to NZ consumers. ComCom in their wisdom seem to dispute this.

As I said back in February:

The Fonterra announcement that it will freeze domestic milk prices for the rest of the year has been greeted with initial praise, but now meets some skepticism. Let me add mine. What they have done is announce they will keep prices at an all-time high. That is what a "freeze" means. It means they will not reduce prices. So, it's actually pretty shitty, but the PR from Fonterra has been lapped up by most of the media, like cats into saucers of NZ's finest. It worked so well for the 'terra monopoly that the supermarket duopoly followed suit... not that that is price fixing. Oh, no that would be illegal: "I don't want to go to jail" said the supermarket frontman on last night's Campbell Live show on TV3; but what else is it if not price fixing? The main supplier says it's x, the two main retailers say it's x, and they all say it within 24 hours of each other - if that's not the fixing of a price then I don't know what is.

And what happened since February? Exactly that scenario: they've kept gouging milk at their randomly chosen exorbitant price point even though other lines have fallen. FFS, if you are 90%+ of a market and fix a price that you won't alter - for the purposes of locking in a very super rate of return for yourself well after the real price has fallen - then that is a fixin' o' the price any way you cut it. And then... in NZ... the Commerce Commission just lets you off. Nothing to see here, move along.

Well there is something to see here. So, seriously now, how much did Fonterra pay them for this report again? It's a slap in the face of the consumer from the regulator and a bit more besides from the milk industry.

UPDATE 5:40pm: OK, took that image down. But if I had hacked into their website they would now be marketing Assmilk® to a confused and unconvinced world.



At 2/8/11 11:26 pm, Blogger tussock said...

Didn't they basically say the CC can't deal with Fonterra because they're not a retailer?

So, basically, if you monopolise some other part of the distribution chain in NZ, that's legally someone else's problem, and the CC aren't allowed to act.

At 3/8/11 10:26 am, Blogger Fern said...

Tim, you might be interested to know that since the price of milk (and petrol) shot up, I am now paying $6.13 for every two litres of milk delivered to my door by the milkman because I cannot manage to carry home six litres of milk (my weekly consumption) from the shops.
I will not cut back on milk because I need lots of it to help me stay reasonably healthy. The milkman is not making a fortune and in fact was very apologetic about the price rise.


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