ComCom: Final report on Fonterra’s base milk price calculation

ComCom: Final report on Fonterra’s base milk price calculation

rsz_fonterra_cows-grazingIn mid-September, the Commerce Commission released its final report on Fonterra’s base milk price calculation for the 2014/15 dairy season. The base milk price is the price Fonterra pays to farmers for raw milk.

Having considered public submissions on the draft decision released last month, the Commission’s overall view that Fonterra’s calculation of the 2014/15 base milk price is largely consistent with both the efficiency and contestability purposes of the Dairy Industry Restructuring Act 2001 remains unchanged.

Deputy Chair Sue Begg said the Commission appreciated the engagement and effort from Fonterra and the parties they met with during this year’s review. “In particular, we want to thank those who made submissions during the review process. We are encouraged that Fonterra and independent processors have indicated they are keen to work with us for future reviews,” Begg said.

The Commission’s final report on the base milk price and related information can be found here:

The Commission is also undertaking a separate review on the state of competition in milk markets in New Zealand. That review is considering issues that are outside the defined scope of our reviews conducted under the milk price monitoring regime.

Fonterra increases 2015/16 forecast total

Meanwhile, on 24 September 2015, Fonterra Co-operative Group lifted its forecast total available for payout for the 2015/16 season to $5.00 − $5.10 kgMS due to an increase in the forecast Farmgate Milk Price of 75 cents.

The forecast total available for payout comprises:

• Forecast Farmgate Milk Price $4.60 kgMS – up 75 cents

• Forecast earnings per share of 40 – 50 cents.

Farmer shareholders have also been able to apply to receive a loan of an additional 50 cents per share-backed kilogram of milk solids for production through to December, through Fonterra Co-operative Support. So far, over 7,000 applications have been received (around 70% of farmer shareholders).

Wilson said the improved forecast Farmgate Milk Price reflected the lift in global prices since July with Whole Milk Powder increasing 44 per cent and Skim Milk Powder increasing 21% over the period.

“Current global prices are unsustainable. While there are signs that supply growth globally is easing, a lift in demand, which is needed for prices to continue to rise, is still to come,” said Mr Wilson. Fonterra has also lowered its forecast milk production for the season. “We are 5% behind last season to date and are currently tracking 8% down on last season on a weekly basis. Farmers are responding to the tough economic conditions and with cow numbers down, less supplements being fed and challenging weather conditions for much of the country, we now expect production to be down by more than 5% for the season,” said Wilson.

Fonterra Co-operative Group has announced a net profit after tax of $506 million for the financial year ended 31 July 2015 – up 183% – after a stronger second half performance in difficult market conditions. Normalised EBIT for the group was $974 million, up 94%.

Click here to view the Annual Results presentation, the Annual Review and the Financial Statements & Statutory Information.

Scroll to Top