Fonterra says Commerce Com. decision disappointing

MEDIA RELEASE

23 DECEMBER 2005

Fonterra says Commerce Commission decision disappointing

Fonterra Co-operative Group said today it had not yet decided whether to appeal a Commerce Commission decision requiring the company to change how it calculates the price of milk it sells to independent producers.

Fonterra Director Milk Supply Barry Harris said the Commission's decision was disappointing, as Fonterra believed the method it had used up until now was a straightforward and transparent one which ensured a level playing field for all independent processors.

Under the Dairy Industry Restructuring Act, Fonterra is required to supply independent processors with up to 50 million litres of milk at a default price, made up of the wholesale price plus transport and other costs.

Until now, Fonterra has charged all its customers the same transport rate paid by the co-operative's supplier-shareholders. However, today's decision requires Fonterra to calculate a separate set of costs for each customer, according to a formula designed by the Commission.

Fonterra and its customers would still be able to negotiate an agreed price other than the default price.

Mr Harris said that if Fonterra were to apply the formula designed by the Commission to all its customers, more than 50 per cent of them would pay more for their milk than they do at the moment.

Mr Harris said having some customers paying a higher price than others seemed contrary to the intentions of the legislation under which Fonterra operates.

"The whole idea of the Dairy Industry Restructuring Act was to create a level playing field for independent processors. Fonterra believed, and still believes, that that intention is best served by having all processors pay the same price for the milk they receive from us. Charging everyone the same transport costs was a way of achieving that."

Mr Harris also said Fonterra's shareholders would continue to pay the national average.

"As a co-operative, our principles are based on the collective good of all supplying shareholders. Dairy co-operatives were founded in this country in the late 1800's on the basic principle of ensuring milk was picked up and costs were shared equally," he said.

"We remain committed to collecting all milk that meets the Terms and Conditions of Supply, and we are equally committed to the principle that the costs of processing that milk, and the revenue earned by that milk, are distributed to shareholders in proportion to the total milksolids they supply."

Mr Harris said Fonterra would review the decision more closely before deciding whether or not to appeal it.

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