Dairy juggernaut Fonterra is being blamed in Europe for contributing to the reintroduction of EU and US protectionist dairy measures.The criticism is over Fonterra’s online monthly global wholemilk powder auction system, Global Dairy Trade. It was introduced 11 months ago as world dairy prices began a downward march. Almost every month since, the average auction price has fallen. This month wholemilk prices were at a five-year low and 58% less than a year ago. The critics say the auction price has become a buyer reference for future pricing, ensuring world prices for whole milk powder have fallen faster and harder than necessary – even allowing for world recession reports The NZ Herald. They are particularly critical of each auction starting bids at 15% below the closing price of the last auction.

Last week the European Commission proposed extending intervention buying of butter and skim-milk powder for storage until the end of February and, if required, until 2011.The EU resumed subsidies and an intervention programme in January. Shortly after, Fonterra announced a third reduction in its milk payout forecast to farmers for the 2008-09 season, partly blaming the EU move. As the market feared, the US responded, saying it would also reintroduce subsidies.

Fonterra, NZ’s biggest company and a farmer-owned co-operative, said the US announcement was “bad news for the market and bad news for our farmers”. Fonterra offers just 10 % of its wholemilk powder (wmp) exports on the internet auction, but critics say because the company is responsible for market sales of at least 60% of globally traded wmp, it has a heavy influence on international prices.

Arla Foods head of commodity sales Thomas Carstensen said Fonterra’s “hefty” criticism of EU policy had been noted.”But I think if you sit down and look at the introduction of export refunds [subsidies] and compare them with the auction system, then it is a question of the hen and the egg – which is coming first?” Big multinational French company Lactalis said Fonterra “has lost its way”. “In weak markets you need some stability, the last thing you revert to are internet auctions. It accelerates the drop and exaggerates the drop. And when it’s introduced in a depressed market it works to bring prices down faster and lower than they should.”

Tags: European Commission, Fonterra, globaldairytrade, Whole milk powder

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