Good things take time? Time for Fonterra to offer Kiwis a better deal.

With all the controversy over the Greens policy on Fonterra, I thought I'd provide a bit of background, and then evaluate the situation consumers find themselves in.

Fonterra, was formed from the amalgamation of NZ Dairy Group and Kiwi Dairies, which originally arose as farmer cooperatives in a similar structure to the current megabrand, from the Waikato and Taranaki respectively.

At the time of the proposed merger, which correctly predicted that the gains in efficiency would deliver improved performance to dairy farmers, there was a concern amongst consumer advocate groups that in the long-term, there would be reduced competition in the market for dairy produce within New Zealand from such a mega-merger.

In fact, this concern was such that the proposed merger was flagged by the Commerce Commission for investigation of the potential of anti-competitive market structure. Especially that, within NZ, at least, it would possess the capability to become a monopolist price setter. Therefore, in response, to allay concerns, the major concessions was with respect to local consumers, that in NZ, the merged entity would have to sell milk to rival firms at the same price it sold to its own distribution and wholesaling outfit.

However, since that time, milk distribution, at least, has consolidated into two main product lines, Fonterra-brands controlled Anchor, and Meadowfresh. This duopoly outcome has highlighted the inherent flaws in the concession granted to local consumers, which allowed Fonterra to come into existence in the first place.

While this was a Labour initiative, to strongarm the Commerce Commission by using enabling legislation, there was largely a bipartisan consensus on this issue. Both the politicians, and the public of New Zealand recognised that this deal would create increased earning potential for farmers, and increase export receipts in a time of increasing trade deficits. They allowed for this cash-cow, pun intended, to be created, and yet now, we see Fonterra taking advantage of this monopoly status that the New Zealand public gave them on the domestic front.

In addition, the dairy industry is a huge producer of negative externalities, be they carbon emissions, increased nitrification of lowland soils, rising river and lake pollution. The New Zealand public, for the most part, has embraced the dairy industry, and its capability to generate enormous windfalls, yet Fonterra, has not returned the favour in any meaningful way other than farmers spending their money here. All relationships require a least a little give and take.

It would be most unfortunate if in order to deliver improved environmental outcomes, and cheaper local prices in fair consideration of what the dairy industry takes (and has been given in the past) by the public of New Zealand, that tighter and increased regulation was necessary. Therefore, in recognition, Fonterra should offer its New Zealand consumers a 20% discount on the world price of exported produce. Good things do indeed take time.

http://newzblog.wordpress.com/2008/06/03/good-things-take-time-time-for-fonterra-to-offer-kiwis-a-better-deal/


I mean, we all at least want those two old buggers to have the chance of catching a fish, right?