2008-12-22

Very Red Hot off the Press - Federated Farmers Media Release 'Re-examination of Fonterra online auction system needed '

22 December 2008

Re-examination of Fonterra online auction system needed

“Auctions on a falling market could hasten a fall in dairy commodities, but whether it is the catalyst is open for debate. A transparent assessment of the system by Fonterra for Fonterra supplier-shareholders is the only way ahead,” says Lachlan McKenzie, Federated Farmers Dairy spokesperson.

Federated Farmers made this call today after recent forecasting of lower payouts by competing milk processing companies, as low as $4.20 per kilogram of milksolids (kg/MS). This also follows months of speculation about the online auction system for dairy products. The Federation, which is the only independent advocate for dairy farmers, believes the new system may have some advantages but then again, there may be flaws that are leading to reduced returns for supplier-shareholders. Given Fonterra’s global position, a review of the auction system is needed to maintain overall confidence.

"Look, Fonterra’s auction system may be a case of extremely bad timing, given the meltdown in many global commodities. We have raised concerns previously about the auction directly with Fonterra. However, in the last few days, we have seen competing milk processing companies forecast payouts as low as $4.20 kg/MS. We now need to take stock and review the auction system," Mr McKenzie said.

“Unless Fonterra allows some transparency to the entire system, speculation about it will only mount. This speculation will likely increase if there is a further revision downwards of the revised payout figure of $6.00 kg/MS.

"Federated Farmers is acting in the interests of our members by making a call for a review of the online auction system.

“This goes to the heart of confidence as I know there are members of the Federation who think the system works okay. Then again, I know in equal proportion, a number who are extremely uneasy about it. These are the ones who ask if the auction system might be repeating the mistakes of the meat industry. Putting a “spot market” between Fonterra and its clients is a major structural change to the supply chain, which is why we had concerns about it from the start.

"If a review found nothing untoward with the auction system, great. If it did, then any remedial action would likely increase returns back to farmers, after all, that’s why we are in business.

“I really don’t see what there is to be lost in a review of the auction system by Fonterra for Fonterra supplier-shareholders,” Mr McKenzie concluded.

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