Is there a method to this madness? John Campbell has been raging against high dairy and milk prices for weeks. We pay too much, says he. Why should Australians get cheaper milk and cheese than we do? We make the stuff, after all. Fonterra, the country's largest dairy producer, responded by freezing the wholesale price of dairy products until the end of 2011. Since then, they've begun fighting back – no more Mr Nice Guy. It's time to give New Zealand a lesson in international pricing strategy, says they. This week, Georgie Fenwicke chatted to a Fonterra representative.
Why is the price of milk so high in our dairies and supermarkets?
Retail prices in New Zealand follow farm gate prices, which reflect international dairy prices. All around the world, food prices have gone up. Dairy is no exception, nor is New Zealand.
But given New Zealand produces so much milk, why does it cost more than other countries?
We’ve looked at milk prices in western countries around the world and New Zealand is still in the bottom quarter. Until December, New Zealand prices were lower than Australia. The recent price war between the major supermarket chains in Australia has pushed down the prices of home brand milk but they are already recognising this is unsustainable.
Competitors are saying Fonterra is manipulating the milk price it pays its farmers to rip off New Zealand consumers?
As Fonterra exports 95% of the milk we produce, the prices our farmers get is based on international dairy prices. International prices (based on global dairy trade index) have increased 35.5% in the last 12 months while the retail price (for a 2 litre blue top) has increased only 9.5% for the same period. Local prices have not increased at the same rate as international prices because, to help keep local prices as reasonable as possible, our New Zealand brand business has absorbed and not passed on cost increases.
Isn’t it true that Fonterra has a monopoly and is ripping off New Zealand consumers?
While we’re the biggest dairy company in New Zealand, there is growing competition. Fonterra currently makes, on average, a net margin of around 12% on the price we sell milk to retailers in New Zealand. At 12%, we are at the lower end of margins for FMCG (fast moving consumer goods) businesses. Of seven New Zealand dairy companies, none of them are supplying domestic milk. They all make more from exporting. If the local milk market is so lucrative, don’t you think they’d supply it? The reality is they are likely to make more money from exports.
Consumption of soft drinks is said to be on the rise. Is this because milk is now so expensive?
Comparing milk with soft drinks is just ridiculous. Both are liquids but that’s where the similarities end. Milk is one of the most nutritious foods you can buy and fizzy drinks offer no nutritional value. Even with higher prices, milk is still great value for money when you think about what you get from a nutritional perspective. A 90 cent glass of milk gives you fifteen essential nutrients and vitamins, as much protein as an egg, as many carbohydrates as a quarter cup of rice and the same calcium as four cups of broccoli. At 90 cents it’s a lot cheaper than a takeaway burger, a pie and even a glass of bottled water.
Doesn’t this just prove that exposure to international forces is bad for consumers?
As an exporting nation, higher prices are good for the economy. However, we understand that New Zealanders are feeling the impact of higher prices which is why our consumer brands business in New Zealand has frozen wholesale prices until the end of the year. This means that New Zealand milk consumers will not be affected if international dairy prices continue to rise during the year.
Fonterra
