Govt should scrutinise Fonterra's role in rising food prices

NZ Herald

16-05-2025

And surely perspective has been lost. I was there to publicly promote the idea that vaccinating older adults against common diseases would pay off for both the health system and society generally.
While that is just one contestable policy idea amongst many, Parliament itself seemed largely consumed by the utterance, not once but twice, of a particularly vile swear word; plus the antics of one of the minor parties, Te Pāti Māori.
There is a legitimate debate to be held about parliamentary and journalistic standards, both of which have been woefully dropping, in my opinion.
In Parliament's case this is no doubt damaging the standing of the institution, which must surely concern those who are giving up their lives to serve in it.
But I doubt it means a hill of beans to the average voter, beyond a general level of disgust.
The public right now are mostly interested in the economy and their jobs, and the cost of living. Those are surely how most will weigh their vote at the next election in about 16 months' time.
With that in mind, next week in Parliament will be much more consequential than this one, as Nicola Willis delivers her second Budget.
She has to keep spending under control, place increased emphasis on value for money, show a path back to surplus, and set the economic climate for more growth.
And all in the shadow of an American President who is not helping anyone as he publicly learns the immutable laws of economics.
It is a daunting task. I think back to the nine Budgets I was involved with alongside Bill English, and this one would be at least as difficult as any of those, which included of course at one stage grappling with both the Global Financial Crisis and the Canterbury earthquakes.
I think there is broad public understanding, if not acceptance, about what is required. Much of the debate over the last week, and indeed much of the vitriol, has been directed at the Government's watering down of the pay equity legislation, which had previously been expensively beefed up by the previous Government.
While there will be plenty of people who disagree with the change, or perhaps how it was enacted, there will nevertheless be a more general acceptance that we can't go on spending beyond our means, and that there are and will be any number of other savings initiatives required.
The Government should not be afraid of levelling with people about the changes needed.
In political terms the opposition is helping, with its stance that pretty much all public spending is sacred, along with the release of pie-in-the-sky alternative budgets completely disconnected from reality.
The Government should refrain from too much premature politicking and electioneering. There will be plenty of time to compare policy prescriptions between now and the election.
Next week should be all about making the case to the New Zealand public that they are taking the right steps to restore New Zealand's fortunes.
The Budget has been locked away for a couple of weeks, and it will be what it will be. But a Statistics New Zealand release on Thursday underlines that there is more work for the Government to do about the public's other main area of concern, the cost of living.
While inflation altogether is trending down, there are two key exceptions, the cost of food and the cost of electricity.
Ministers are working on both fronts, but decisions have yet to be made and seem to hang in the balance. It is clear, for example, most of the electricity gentailers are fighting a strong rearguard action against changes to electricity market settings, as you would.
The Government has also taken the long rhetorical handle to the supermarket industry, and fair enough. But there is one area of cost increases where they have been noticeably quiet.
It is clear one of the biggest contributors to food price increases is dairy products. A 500g block of butter is costing consumers a whopping $3 more than it did a year ago, while milk is up 15% and cheese up 24%. Those are hefty in anyone's language.
The conventional response of farmers and Fonterra to such price increases is to shrug and talk about the influence of world dairy prices. Which is true to a point, but not the whole story.
Fonterra is a Government-sanctioned near-monopoly, which controls about 80% of the milk collection in New Zealand. And it is only partially regulated.
The laws around it focus on the farmgate milk price, to ensure farmers are treated fairly, and retail regulation, to ensure there are options for retail competition.
The gap, which the Commerce Commission has highlighted from time to time but over which it has little influence, is the cost of dairy processing.
Nobody really knows whether Fonterra's factories are as efficient as they could be, and whether consumers here are paying a fair margin for that cost of production.
Put it this way. If there was genuine competition on the processing side, we'd know whether Fonterra was doing the best job it could for New Zealand consumers or not. The current way we are just guessing.
It is a little incongruous that the Government is so focused on the supermarket trade, which is at least a competitive duopoly, and the electricity market, which is an oligopoly, but silent on dairy processing.
It is time to take a look. There may be nothing to see here, as I'm sure Fonterra leaders and shareholders would say, but as Fonterra readies itself to sell off its consumer brands, there could hardly be a better time to have a closer look at what is happening under the processing hood.
And consumers would surely thank the Government if there was some downward pressure on dairy prices in their weekly shop.