The supply of raw milk to independent processors
Estimates of raw milk volume to be supplied
Under the Dairy Industry Restructuring (Raw Milk) Regulations 2001, Fonterra may require from each independent processor estimates of the quantity of milk that the processor wants to purchase. Fonterra can ask for a first estimate up to three months before the date on which the milk is to be supplied and then a second estimate up to one week before the commencement of supply. The second estimate has to be within a +/- 40 percent range of the first estimate.
A special provision has been made for the supply of winter milk, that is the milk supplied in June and July, when milk production is generally low. If the volume of winter milk to be supplied exceeds 20,000 litres per day, Fonterra can require the first estimate up to 18 months before the date on which the winter milk is to be supplied.
Price of raw milk
An independent processor may either agree with Fonterra on a price for raw milk or require Fonterra to supply the raw milk at the default milk price.
The default milk price in a season is:
- for raw milk:
- the wholesale milk price for that season, which is Fonterra's farmgate price plus 10c per kilogram of milksolids; plus
- the reasonable cost of transporting the raw milk to the independent processor.
- for winter milk:
- the wholesale milk price for that season; plus
- the reasonable cost of transporting the raw milk to the independent processor; plus
- the additional cost of winter milk in the island in which the winter milk is to be supplied.
- for organic milk:
- the wholesale milk price defined above for that season; plus
- the reasonable cost of transporting the raw milk to the independent processor; plus
- the reasonable additional cost to Fonterra of procuring and supplying organic milk.
The default milk price can only apply to:
- winter milk;
- milk supplied in October; and
- milk supplied in August, September, November, December, January, February, March, April or May that does not exceed by more than 10 percent the volume of raw milk that is supplied in October.
A new independent processor to whom raw milk would be supplied for the first time later than in October will have to negotiate the price with Fonterra.
The October rule has the effect of requiring processors who want the default milk price to take a reasonable volume of milk during the period of peak production of a season.
Limits on the volume of raw milk Fonterra has to supply
The total volume of raw milk that Fonterra must supply to independent processors is limited to 600 million litres for a season, with a 250 million litres cap to New Zealand Dairy Foods Limited, and interconnected body corporates and a 50 million litres cap to any other independent processor.
The volume cap of organic milk to be supplied in a season to an independent processor is defined as the volume of organic milk supplied to that processor by the New Zealand Co-operative Dairy Company Limited and Kiwi Cooperative Dairies Limited in the 2000/01 season.
Information disclosure under the Raw Milk Regulations
The regulations that have been made under the DIR Act oblige Fonterra to publish information about its business.
Every three months, Fonterra must publish:
The total volume of raw milk that it has contracted to supply to independent processors for the season and the following five seasons; and
The forecast for the season of:
- the total cost of milk;
- the farm gate milk price;
- kilograms of milksolids supplied;
- the additional cost of winter milk for each Island; and
- the additional cost of organic milk.
At the end of each season, Fonterra must publish the actual figures for that season of:
- the total cost of milk;
- the farm gate milk price;
- kilograms of milksolids supplied;
- the additional cost of winter milk for each Island;
- the additional cost of organic milk; and
- the total winter milk premium.
A copy of any published information must be publicly accessible on Fonterra's website.
