18/02/2011image expired

In an almost perfect parallel of the current concern surrounding milk’s position as a loss-leader in UK supermarkets, consumers in New Zealand have expressed outrage at the price of milk and other dairy products, which they say are too high.

Andrew Ferrier, Fonterra’s chief executive officer, has today (18^th Feb) said international milk prices’ steady rise in recent months, while good for food exports and the New Zealand economy, has meant New Zealanders are feeling the effects in their pockets.

The public concern has led Agriculture Minister David Carter to seek a special report from his officials, with the aim of assuring New Zealanders there are no “cosy arrangements," and that legislation designed to rein in Fonterra's domestic market power is still effective.

Fonterra’s managing director in New Zealand stepped into the fray this morning; Peter McClure has admitted he would be "uncomfortable if prices moved up much more," although Fonterra had been threatening another price rise if export returns remained strong.

Fonterra U-turn over threats of further price increase.

Contrary to his company’s previous threats, McClure today told Radio New Zealand he is freezing domestic milk prices in a bid to avoid losing customers. McClure said it is in the company's best interests long-term to keep people buying milk and revealed he is considering continuing the price freeze into next year. He urged retailers to support the price freeze. The company asserts that it is not passing the full cost of soaring commodity prices, which it says have risen by over 26% in three months, onto consumers.

The move followed complaints that milk was more expensive than soft drinks, despite its healthier content. Mr McClure said milk represented "incredibly good value"; a two-litre bottle can still be bought for less than a cup of coffee. He offered assurances that rendering milk “unaffordable” was not Fonterra’s intention and that the company “want to do everything possible to keep our costs down.” McClure speculated that it may be prudent to undertake market research focusing on the rising price and consumer resistance to it, as the past three months have witnessed a dramatic drop in sales.

New Zealand Scandal ‘mirror image’ of UK dairy crisis

While Fonterra’s milk scandal has been playing out in New Zealand, in Britain, where milk costs less than bottled water, farmers have been struggling to raise public awareness of the damage artificially low prices have caused to the industry.

Milk Development Council figures show the number of dairy producers in England and Wales in December 2010 stood at 11,041, 461 fewer than the previous year. The NFU suggest dairy farmers lose an average of 3p for every litre of milk that they produce, amounting to an annual funding gap of £330m.