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Kiwi dairy leader on pricing system | The Milk Maid Marian

Generally, in most countries the unwritten rule is that the largest Co-op in the market sets the milk price.

In New Zealand’s case that is Fonterra, while the other Co-ops will return all profits they make (after any retentions) back to the farmers as milk price, so they sit outside that rule to a degree.

The private companies will pay a price based on the Fonterra price, so it might be a few cents more to attract supply, or a few cents less to retain supply.

Often the way these companies have attracted supply is through the fact that farmers can leave Fonterra, sell their Fonterra shares which for most farmers is a tidy sum, and then get a similar milk price supplying someone else and use that capital for something different.

So, in a practical sense, the Fonterra milk price is often viewed as the New Zealand Milk Price. Fonterra was created as a result of the two largest Co-ops merging with the NZ Dairy Board back in 2001.

The Government passed special legislation to bypass the Commerce Commission (our version of ACCC). This legislation, the Dairy Industry Restructuring Act (DIRA), set many rules that Fonterra had to follow to allow for domestic competition and transparency.

This led to the development of the milk price manual. In the early days the manual was slightly different to how it works now, with the Global Dairy Trade are a key component of it these days.

That said during the Dairy Board days, we have always had a system of forecast payout, advance rates, retro payments, and final payout.

This system continues today with most companies in New Zealand following the milk price manual and that methodology for calculating the payout (for Fonterra).

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Kiwi dairy leader on pricing system | The Milk Maid Marian.

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