New Zealand’s big dairy company, Fonterra, has come under pressure from two directions this week. First, its fortnightly GDT auction registered another fall in prices. Second, it faced fire from four of its competitors which lobbied the government against its capital restructuring plan.
On the first issue, the latest sale has taken the GDT index to the lowest level since January last year, although what may soften that particular blow is the devaluation of the local currency. The NZ dollar is now trading well down against the greenback at US56c , from where it was then, around US70c.
The average price at the auction fell 4.6% to US$3723 a tonne, after falling 3.5% in the previous auction.
Prices have generally been falling since hitting a record high in March.
The price of whole milk powder, which strongly influences the payout for local farmers, fell 4.4% to US$3421 a tonne.
Among other categories, skim milk powder fell sharply, 6.9% to US$3250 a tonne, cheddar 3.9% to US$4769 and butter 2.6% to US$4851.
NZX dairy insights manager Stuart Davison told RNZ weak demand was the key driver in the fall.
“The demand at this auction was so weak that only whole milk powder and butter managed to register a 2.0 demand-to-supply ratio at the outset of the auction, with every other product on offer starting out with only a 1.5 demand-to-supply ratio”.
By the end of the auction demand for whole milk powder was lower. The sharp fall in skim milk powder was expected, h added.
“Skim milk powder was always going fall off the edge when buyers were in the right position to be able to step away.
“Supply has rapidly caught up in the interim, with all major producing regions now flush with skim milk powder, and buyers can be picky on their skim milk powder purchases.”
Meanwhile Andrea Fox reported in the NZ Herald that four companies have teamed up for a last-ditch fight against elements of Fonterra’s capital restructure they consider anti-competitive.
The Government is serving the commercial priorities of Fonterra over other New Zealand dairy processors, enabling an already dominant force to strengthen its market hold, say
In a submission to Parliament’s primary production select committee hearing the case for the country’s biggest business to get a law change to enable its capital restructure, the Open Country Dairy, Miraka, Synlait Milk and Westland Milk Products companies said they had combined to express a common concern the Government is not being neutral.
Fonterra, created from an industry mega-merger under special legislation 21 years ago, needs Parliament to pass amendments to the Dairy Industry Restructuring Act (DIRA) to action its proposed capital structure rejig.
Promoted in 2001 to be “a national champion”, Fonterra is seeking to keep its factories full by making it easier for farmers to buy its shares and supply milk, as competition for milk tightens in a declining production market.
DIRA sets the ground rules for competition in the dairy processing sector, a cornerstone of the economy.
The joint submission said DIRA impacts not just Fonterra but other processors which handle 21%NZ of milk and employ thousands of workers in provincial NZ.
“Despite this, Fonterra’s commercial priorities are the focus of the (DIRA) Amendment Bill,” the submission said.
Point of Order thinks Fonterra won’t be too worried by this criticism, because Agriculture Minister Damien O’Connor has already indicated he is backing Fonterra’s capital restructuring plan.
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