Estimates Debate — Vote Commerce

I was waiting momentarily for the arrival of the Minister of Commerce, but I assume she will be deputised for in this debate.

I want to speak about two very important issues, which right now are affecting every single family in our country. Those two issues are, firstly, the price of milk, and, secondly, if I get some time to mention it briefly, the price of motor fuels.

Back in early April, I asked the Parliamentary Library to investigate for me the price of milk in New Zealand as compared to its comparable retail price in the United States, Canada, England, and Australia. I did that because I was very concerned that we have just simplistically said in the House—and Ministers have said this in the House—that the price of milk has gone up in response to international demand. When those figures came back and I discovered that the price of milk in New Zealand was actually higher than it was in some parts of Australia, the UK, and Canada, I began to get very concerned indeed. As I took that information out to the media I was very surprised at the massive response I got from many households, families, and business people, who said: “Look, you’re really on to something here. We are paying far too much for milk in New Zealand.”

I want to ask first of all what it is that we are paying for when we buy milk in New Zealand. It is pretty simple. First, it is the cost of milk from the farmer. Farmers get 60c a litre, or $1.20 per 2 litres. There is then the cost of treating that milk before it can be sold legally in New Zealand—in what used to be called milk treatment plants—which is a very simple and cheap process. We have the cost of taking the milk to the point of retail, then it is retailed off the shelf. It is impossible to conclude from that simple little analysis that it can be justified for New Zealanders to be paying well over $3, and up to $4 at the moment, for 2 litres of milk.

Accordingly I wrote to the Commerce Commission on 28 April and asked it to start an investigation into this matter. I received a response from the chief commissioner saying that the matter was outside the purview of the commission but nevertheless it would begin to look at the subject because it also had some concerns. In response to that letter, on 1 May I sent a lengthy letter to Paula Rebstock at the Commerce Commission, who had responded to my original letter, outlining that I thought there was a definite problem we should be looking at. I want to explain why.

If we exported milk overseas—which we do not; we export milk powder—in addition to the four simple costs I have mentioned of the milk, the treatment, the transport, and the retailer’s margin, for milk going overseas we would have to add all of the costs for Fonterra itself. That would include not only the processing costs to convert milk to, say, cheese, but in addition the vast international corporate structure of the company itself, with its highly paid executives, marketing, and the like. All of it exists purely for exports. Secondly, there would be the cost of insurance and freight to the border of the importing countries, the exchange rate risk involved, the tariffs payable at the border of the importing country, the cost of distribution from the port of entry to the retail shelf, the cost of any value-added tax, GST, or similar at the point of sale, and, finally, the retailer’s margin.

When we add up all of that, it is clear that it would be impossible for milk to be sold from this country at the price we charge it to New Zealanders and still make a profit. When we add on all of that, the cost overseas would be vastly higher than it actually is. That leaves me seriously concerned. The Commerce Commission has said that it will come back to me in due course, and I still have not heard from it, but just the Saturday before last in Hamilton a group of dairy farmers said to me: “Look, you are on to something very important here because we have come to the conclusion that the price of domestic milk in New Zealand is actually subsidising Fonterra’s international operations.” If that is true, we have a very serious problem and I believe that in that case the Government must undertake a full inquiry.

I believe that we need to decouple the price of milk in New Zealand from the international price of milk products. After all, in Saudi Arabia, where people pay 20c a litre for petrol, the Saudi Arabian Government does not force them to pay an international price because the price of oil has gone up in other countries. Thank you.

Vote agreed to.

Vote Food Safety