New Zealand tightens oversight of how Fonterra sets farmgate milk prices

Credit: REUTERS/© Nigel Marple / Reuters

New Zealand's government on Thursday said it would tighten its oversight of how the giant Fonterra dairy cooperative sets the price it pays farmers for milk.

WELLINGTON, June 6 (Reuters) - New Zealand's government on Thursday said it would tighten its oversight of how the giant Fonterra dairy cooperative FCG.NZFSF.NZ sets the price it pays farmers for milk.

The change, which follows a review of the legislation governing the world's biggest dairy exporter that was announced in 2017, means Fonterra must appoint a member of the panel that sets its so-called farmgate milk prices who has been nominated by the country's agriculture minister.

It would also limit the discretion Fonterra has in setting a "key assumption" it uses to calculate the base milk price, said Agriculture Minister Damien O'Connor.

The New Zealand competition regulator has previously said the way Fonterra sets the price may have lead to farmers artificially receiving higher farmgate milk prices.

"The other dairy companies felt it was too high .... (But) from the announcement today, it's still not clear how big an influence that would have," said Susan Kilsby, agriculture economist at ANZ Bank. Although she added that any impact could lead to lower farmgate milk prices.

Fonterra said in a statement that it supported "greater pricing transparency across the industry and notes with interest the government's decision that the Minister of Agriculture will be able to nominate one person to sit on Fonterra's Milk Price Panel".

In May, Fonterra forecast a farmgate milk price range of NZ$6.25-NZ$7.25 per kg of milk solids for the 2019/2020 season, which begins this month, compared to NZ$6.30 to NZ$6.40 for the previous season.

The new laws, which the government said would keep pace with a changing industry, would also allow Fonterra to differentiate the price it pays out to farmers based on factors such as environmental, animal welfare and sustainability standards used on their farms.

(Reporting by Charlotte Greenfield; Editing by Joseph Radford)

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