New Zealand would be committing 'collective suicide' if the government agreed to demands for an independent commission to set the domestic milk price, claims Fonterra chief executive Andrew Ferrier.Apart from getting the government some brownie points with voters it's not clear what problem regulation of milk prices is going to fix.
"It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around free markets," Ferrier said in response to industry campaigners taking their call for a milk price regulator to Minister of Finance Bill English. "It would be a massive step back to the dark ages. There are internally established milk prices in the US and Europe and it is commonly known to be their failure. It is everything we have been lobbying against for 30 years [in overseas markets]."
The stuff article continues,
A complaint to the Commerce Commission alleging Fonterra is artificially inflating the milk price, thereby distorting wholesale and retail prices, proved the tipping point for the competition watchdog, which has announced a preliminary investigation of the domestic market.As I have said before I'm not sure how "artificially inflating the milk price" is anti-competitive. The higher the price, the more competition is attracted.
"When governments intervene in industries they cause enormous secondary problems that are not easy to foresee."If you can sell in two markets, one of which pays you more than the other, it seems obvious which one you will sell in.
He cited the example of Argentina, about four years ago. When world prices were too high for the domestic market's liking, the government set a domestic market price.
"Literally within weeks, all the major dairy companies figured 'we can't afford to sell at that price' so they started exporting more. Why wouldn't they? To stop the exporting [increase] the government put on an export tax ... it actually bankrupted some companies. The legal implications are mind-boggling."
"The question is, what problem are they trying to solve? The Fonterra milk price is really very simple. It is the returns [to Fonterra] of the world market, minus the costs of making the powder to sell in world markets."And this is the real question: are we paying the world price? If so, what is the problem?