‘‘The issue of retail dairy and DIRA [the Dairy Industry Restructuring Act] will no doubt come up when DIRA comes before Parliament again from the capital restructure proposals Fonterra is working through,’’ Mr O’Connor said.
‘‘Perhaps this will be an opportunity to look at this, though it won’t be a primary focus.’’
Asked if he would make a point during the capital structure talks of looking at the high prices of staples such as milk and cheese, he said: ‘‘People are perfectly entitled to request of the Commerce Commission a detailed analysis of the situation, as it’s their role to provide advice back to the regulators as to whether we need to make some changes’’.
‘‘We are very aware of the cost of food and the anomaly that our prices offshore are sometimes cheaper than those onshore. It’s a complex situation.’’
New Zealand’s dairy retail market is small; about 95% of dairy production is exported.
Manufacturers here, including Fonterra’s domestic market arm Fonterra Brands, pay the same price for milk as global buyers.
The situation is further complicated by Fonterra, created 21 years ago from an industry megamerger under the enabling DIRA, still collecting about 79% of all raw milk, and that the price of raw milk is subject to regulation.
While DIRA requires the farmerowned cooperative to provide some milk at a regulated price to export competitors and to local retail market manufacturer Goodman Fielder, the number of significantsized suppliers to the retail market is small.
Most supermarket house brand milk is ultimately sourced from Fonterra, New Zealand’s biggest business and the world’s sixthlargest dairy company by revenue ($20.6 billion in FY21).
The country’s secondbiggest dairy manufacturer, Open Country, only exports.
Exporter Synlait has launched a consumer foods arm called Dairyworks, aiming to become the secondlargest player in New Zealand consumer dairy foods.
Another influence on retail prices is what Mr O’Connor called ‘‘the duopoly players in our food sector’’, referring to the two supermarket chains, Foodstuffs and Countdown (Progressive Enterprises).
‘‘When I go to the supermarket it doesn’t seem like [there is lack of competition] given the huge range of options be it cheese or milk, but clearly there are house brands and some supply arrangements that may limit the real competition rather than the perceived competition,’’ he said.
Fonterra and Foodstuffs, operator of New World and Pak’n Save, would not discuss Fonterra’s market share.
Countdown said Fonterra accounted for 19% of dairy products in its stores. Whether this included Fonterrasourced home brand product is unknown.
The Commerce Commission could not provide information on Fonterra’s domestic market share, nor could the Ministry for Primary Industries which oversees the provision of DIRA.
To suggestion that 21 years on from the introduction of DIRA, it was time to review Fonterra’s influence in the retail market, Mr O’Connor said he believed there was more competition at the nonsupermarket retailer level.
‘‘[But] the question you ask of arrangements between the duopoly retailers and how much that might affect the price of dairy [products] is one. I’m not in a position to judge.’’
The Government was probing supermarkets through a Commerce Commission study, and primary food sectors themselves had identified the need to provide affordable food, he said.
‘‘There’s pressure and a dilemma when on one hand we are trying to push for more value from our export sectors but on the other hand ensure food is affordable for New Zealanders.’’
The Commerce Commission had not advised him of any lack of competition in dairy supply.
‘‘But that’s not to say there is not some advantage being taken by all suppliers because of the lack of competition, or our arrangement with duopoly players in our food sector.’’
Fonterra chairman Peter McBride, a dairy farmer, said he was aware of concerns about retail dairy prices.
The board had not discussed how Fonterra could address the issue of some people struggling to afford staple dairy products.
‘‘It goes back to that fine balance between supply and demand, and every dairy region around the world is under pressure from consumers to lower their environmental footprint.’’
Retail prices were a discussion for management, not the board.
To the suggestion Fonterra Brands could be split from Fonterra’s export operations and a milk pool with a nonglobal market price dedicated to it to make staple products more affordable, Mr McBride said ‘‘I don’t see any change in that regard’’.
Asked if he could see a time when Fonterra would need to think about a delinking of global and domestic prices, he said it had not been discussed by the board so he could not comment.
‘‘We have a commercial construct and we have competition. The dairy price is highly regulated in New Zealand . . . if we dropped the price we would be undercutting competitors . . .
‘‘You could lock yourself into something and it goes the other way. We have to run a commercial business.
‘‘We can’t get away from DIRA and regulations. That’s the model we operate in.’’
Asked if Fonterra could be more flexible in its retail pricing if not for the Act, Mr McBride said he was not sure, but the firm ‘‘will always act commercially’’.
