Milk price regulation

April 17th, 2011 at 10:26 am by David Farrar

Andrea Fox at Stuff reports:

New Zealand would be committing ‘collective suicide’ if the government agreed to demands for an independent commission to set the domestic price, claims chief executive Andrew Ferrier.

“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].”

I agree – regulation would undermine our trade policy.

“When governments intervene in industries they cause enormous secondary problems that are not easy to foresee.”

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.”

If Fonterra is forced to sell milk for a lower price in NZ, than overseas, then their logical response would be to sell as much as possible overseas, and NZ could even face milk shortages.

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125 Responses to “Milk price regulation”

  1. the deity formerly known as nigel6888 (852 comments) says:

    Indeed. When Argentina having “learned” from this fiasco and tried to put an export tax on beef to keep local prices down, the herd suddenly dropped by 10% and beef became scarcer – a crisis in a culture which is heavily beef based.

    But of course Peronism is actually about taking from evil capitalist fat cats and distributing to the urban disadvantaged. It creates a “corporatist state” where crony capitalists prosper, where clever businesses have to hide from the government, or suck up to them but actually the overall standard of living declines. Which is why Argentina, which should be one of the richest countries on earth is in fact a disaster.

    Of course State controlled price intervention is a well travelled track from the 20th century. Because of course when the State co-opts the productive to the benefit of workers and the disadvantaged there have never been, er unintended, outcomes. Ah, history, wonder when we stopped teaching it at school?

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  2. dime (9,980 comments) says:

    these sorts of laws are a matter of time. with the emerging middle classes in india and china, our food is going to keep going up n up. eventually they will legislate that x amount of nz produced food will have to be sold in NZ and at a certain price. just my 2c

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  3. nasska (11,580 comments) says:

    If the proponents of price regulation can get the DeLorean up to 88mph they should go & have a gecko at Muldoon era NZ. A few of us will remember that time less than fondly as an example of economic regulation. Every time price control was exerted on a particular item, be it wages or the price of bread the law of unintended consequences came into play.

    It’s a market problem & given time the market will provide the solution.

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  4. kaya (1,360 comments) says:

    It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around free markets,

    Except as we now know, the “free market” is as stupid a mythical entity as the glorious communist state. They are both figments of deluded people’s imaginations.

    When governments intervene in industries they cause enormous secondary problems that are not easy to foresee.

    Apparently the “rules” don’t apply to financial markets.
    What makes it ok to interfere in the financial markets? Oh that’s right, because the world will collapse without them – but don’t interfere in the markets for the real products and services that we actually need? Pardon? Run that by me again?

    If you are going to even attempt to argue for the free market then the rules have to apply to every part of the game, not just the ones that suit your own self interests, otherwise the discussion is irrelevant.

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  5. jims_whare (403 comments) says:

    If you go down this road of forcing domestic prices down via regulation when international prices are high, will it go the other way and hold domestic prices up when international prices are low?

    I doubt it but you cant have one without the other. Dairy farmers know that dairy payouts are cyclical high payout years will be followed by low payout years even though crystal ball gazers say the prices will stay high into the foreseeable future looking back over 20 years this has never held true.

    When prices have gone high US & European milk producers have ramped up production to take advantage of this which has forced prices down and so on

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  6. Neil (588 comments) says:

    At the moment there is pressure from left-leaning groups to cap milk prices. This would be a disaster,both from a regulatory point of view and also the consequences of this policy.
    No doubt there is the nostalgia of the 4c a litre milk of the pre-1984 deregulation but we have moved beyond that.
    Poor wages,poorly planned family budgets and a willingness to hammer the farmer producers,Fonterra and the Supermarkets.
    Increasing productivity must be the way that we can overcome this problem,upskilling the low income and encouraging producers of food.More personal income based on productivity will sort out that problem.
    What is not needed is the politics of envy from consumers towards the farmers,Fonterra and the supermarkets.We must get good prices overseas, yet why should the farmer producers have to accept lower prices for domestic consumption.Likewise urban dwellers should not be hammered by rural producers. We are in this all together.
    Until we can achieve higher productivity and tax policies encouraging effort, these cyclical glitches in sky rocketing food prices will continue to impact.
    Just consider Africa which with its poverty because of low personal incomes, where food shortages are going to increase over the next few years.Supply and demand !
    This is not a milk issue, it is an income and productivity issue.Consider also, New Zealand is in a strong position in the world food and water crisis. We could be part of the lucky food producers.
    Look how the wealth development of Japan,China and now India has opened up opportunities for us.

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  7. reid (16,509 comments) says:

    I struggle to understand why we pay what we do when domestic milk doesn’t have the shipping costs involved. And someone in the supply chain is whacking on some huge mark-ups, which I’m not interested in tolerating.

    Rather than regulate the price I would require all players in the domestic supply to publish their mark-ups once a quarter, so we the public could see who is doing what and act accordingly. I don’t really care that it is commercially sensitive information. If they don’t want this to happen, then don’t rort us. Simple. This way the price mechanism remains free, we don’t expose ourselves to price-fixing allegations and we have a market-oriented way to adjust the price. Simply vote with our feet, depending on whose doing what.

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  8. Inky_the_Red (760 comments) says:

    I would make two rules
    1 No one is allowed to sell soft drink for less than the price of Milk
    2 No one is allowed to sell soft drink without selling milk

    Watch the soft drink industry subsidise milk

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  9. MyNameIsJack (2,415 comments) says:

    Yes, the “free market” works perfectly well in the NZ Baby Formula trade, doesn’t it?

    The Weekend Herald reports supermarkets limiting kiwi customers to 3 tins at a time while simultaneously, the same supermarkets on seel to China by the container load.

    Farrar If Fonterra is forced to sell milk for a lower price in NZ, than overseas, then their logical response would be to sell as much as possible overseas, and NZ could even face milk shortages.

    Blinglish reckons our low wages are a nice to have, and tough shit if kiwi families can no longer afford to buy milk products if they cannot pay the same or more than wealthier people in other countries.

    Your “free market” doesn’t exist.

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  10. nasska (11,580 comments) says:

    Reid @ 11.08am

    I’m not positive that there are huge markups but I like your idea. Suppliers would probably go along with it rather than accept regulation & the disinfectant of sunlight would get to work its miracle again.

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  11. homepaddock (408 comments) says:

    When we were in Argentina a couple of years ago city people had been protesting in SUPPORT of farmers against the government. They’d imposed export taxes to keep the domestic price down so farmers had moved from producing milk and beef to growing soya and there were shortages of dairy products and meat as a result.

    Inky @ 11.10 – What’s soft drink got to do with milk? One’s sugar, water and flavouring, the other is a food. Linking the price or sale of one to the other would be like linking the sale of comics to text books.

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  12. taranaki (20 comments) says:

    Fonterra is a statutory body with numerous pieces of specific legislation that exempt it from the real world the rest of the economy is in- it’s the part of our domestic economy that is the __least__ free if you talk about the “free market”.

    Regulating domestic price in absence of a domestic market isn’t rocket science; in fact it seems a logical step. Either open up Fonterra to competition law – or set milk prices.

    Why are you so keen to protect Fonterra David?

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  13. jims_whare (403 comments) says:

    This is a copy of a report from Fonterra – take from it what you will

    RETAIL MILK PRICES IN NEW ZEALAND – THE FACTS

    There’s been a lot of talk recently about the cost of milk in New Zealand and its impact on household budgets. In defending our position we’ve been reluctant to get into the specifics of our product margins, but it has become clear that unless we do, this debate is not going to go away. It makes no sense to have our reputation in New Zealand damaged when the facts do not support the accusations being made against us.

    We know you will all have been questioned by your friends and family about this, so we have taken the decision to reveal the facts around margins

    On average, Fonterra currently makes around 12% net profit on the price we sell milk to retailers – this is at the lower end for consumer goods.
    Fonterra does not control milk prices – our farm gate milk price is based on global prices and the retail price is set by retailers. Based on globalDairyTrade, international prices for dairy products were up 35.5% in the year to February, but New Zealand retail milk prices were up only 9.5%.
    We know consumers are feeling this in their hip pocket, which is why our NZ consumer business has frozen the wholesale price to the end of 2011.
    There is competition in both retailing and processing.
    Competitors collect nearly two billion litres of their own milk – five times the size of the New Zealand domestic market.
    Of the five other major dairy companies with their own supply, none are supplying domestic milk. They choose to export this instead. If profits were so high in the NZ consumer milk market, surely more companies would be targeting this area?See Image One – Alternative Processors’ Milk Processed 2010/11.

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  14. Fisiani (1,039 comments) says:

    I have recently learned that Grant Robertson the Machiavelian Labour schemer has put forward a cunning plan to claim in the election campaign that Labour will force Fonterra to sell milk in New Zealand for a maximum of $1 a litre. TV Images of angelic children sipping delicious milk will be accompanied by the words cheap fruit, cheap vegetables, cheap milk. For the kids sake Vote Labour. Anyone who opposes this is just a heartless bastard who does not care about children. Labour cannot win on logic. Labour cannot win on talent. Labour cannot win on fear.
    Grant believes that voters like being given something for nothing or more cheaply. He believes that they will naively fall for the line that this generosity comes from a loving Labour who love the little people. He also believes that they are too thick to wonder who will actually pay. He believes they will reward Labour with their vote. He believes that this message is simple and emotive. He believes that a counter argument is complex and unemotive.
    The only problem with this patronising strategy is that it might just be seen as unaffordable, unworkable and just another despairing attempted blankets and beads bribe. It also opens up Labour to another visceral voter emotion. Fear. Fear that Labour will again always do what is bad for New Zealand but good for Labour. Fear that Labout will again bankrupt the country. Fear that Labour will again leave the cupboard apparently bare but on closer inspection we will find a bundle of un
    opened unpaid bills.
    Grant Robertson truly believes that you can fool enough of the people enough of the time.

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  15. Lazybum (259 comments) says:

    Some Maths, based on some assumptions but happy to be told otherwise.
    Milk is about 12.5% solids. Hence 7/8 of the milk is liquid.
    Farmers get $8/kg of milk solids. So every 8 litres of milk gives 1kg of solids. So the farmer gets $1.00 per litre of milk produced.
    Min price for milk is $1.80 per litre, based on $3.60/kg at Albany P&S. This is home brand.

    So from the farm gate to the supermarket there is a 80% increase. In my opinion this is not too excessive, as Fonterra need at least 35% Gross Margin (GM) for operating & head office overheads, this makes the figure $1.53/kg, so the supermarket gets $0.27/litre, which is 15% GM.

    If people pay say over $2.00 per litre it is a value added product and/or a brand, such as Anchor/Meadow Fresh.

    Personally, I am not happy to pay more for milk, who is, but I understand that the price is high based on current demand for our milk products. I would rather has this position however, as it is benificial for NZ as a whole.

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  16. Lazybum (259 comments) says:

    Albany P&S is $3.60 per 2 litre container, hence 1 litre is $1.80/litre.

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  17. jims_whare (403 comments) says:

    Lazybum – Milk Solids % that farmers get paid for is around 8.5-9.5% per litre not 12.5%. 12.5% would include lactose and other minerals which currently have no value.

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  18. Inky_the_Red (760 comments) says:

    What has soft drink got to do with milk?

    They are both drinks. One is a lot more healthy than the other. The healthy one is expensive relative to unhealthy one. The free market only works in the short-term. The long-term negatives of sugar fulled drinks is not meet by the producer (or the consumer).

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  19. reid (16,509 comments) says:

    It’s not just liquid milk prices that need sunlight. The public should be told the mark-up $ amount (not the percent – we can work that out ourselves, thanks), for every single dairy product from every single player who comes anywhere near the supply chain from farm gate to supermarket shelf.

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  20. tristanb (1,127 comments) says:

    How much milk are people drinking? And is cheap milk another one of our fundamental human rights?

    If you’re drinking 4L per day, that’s less than $10 (not including price of toilet paper for your baby shit). Less than ciggies, less than the pokies, less than the mortgage you got for a house you can’t really afford.

    If you can’t afford that – here are a few solutions:
    1. Drink less milk.
    2. Spend less money elsewhere.
    3. Get another job or work more hours at your current job.

    You’ll see I’m missing number 4:
    4. Force the government to regulate the price of milk, meaning that people don’t want to sell milk in New Zealand. Blame Farmers, Fonterra and the supermarkets. Rather than seek an alternative, just cry to your nanny state. Who cares where the “missing money” will come from.

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  21. Monique Watson (1,062 comments) says:

    Great idea to publish the supply chain mark-ups. Apply it to a basket of goods including fruit and veg.

    Affordability comes down to a wealthier New Zealand. Can’t shoot the golden goose with regulation and no government will act to regulate. Farmers should be able to trade a shares and a second class non-controlling share issue with ownership open to everyone should be available to bolster own puny capital market.

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  22. tristanb (1,127 comments) says:

    Inky the Red,
    When I am deciding what to put in my cornflakes, or in my cup of tea, I do not toss up between Fanta and milk.

    They are not interchangeable. Of course fizzy drinks are cheaper! They’re just carbonated water and sugar, with artifical flavouring and colouring. Milk comes from the mammary glands of thousands of cows – it’s a bit harder to make. Plus it needs to be refrigerated and has a limited shelf life. I’m surprised it is not 10x as expensive as Coke.

    People give their kids soft drink every day because they are stupid and thoughtless. Not because milk is expensive. If price was a factor the kids would be drinking tap water – which is perfectly good for you.

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  23. wat dabney (3,775 comments) says:

    If only such Mugabe economics had been tried elsewhere we could look to see how well it worked out for them…

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  24. Danyl Mclauchlan (1,070 comments) says:

    If Fonterra is forced to sell milk for a lower price in NZ, than overseas, then their logical response would be to sell as much as possible overseas, and NZ could even face milk shortages.

    The cost of Fonterra shipping its product overseas is not zero.

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  25. Seamonkey Madness (328 comments) says:

    While I’m generally against government price intervention – regulate away.
    There is always a glut of milk at the supermarket I shop at. Dozens upon dozens, if not hundreds of bottles of milk, already a few days old. And what’s the bet that it will just stay there until it all gets tipped down the drain.

    Obviously the price is too high that people aren’t just buying milk for the hell of it, leaving them to tip it down the drain at their house instead. What Fonterra hasn’t fixed yet is the amount of supply.

    While this may not be the case in – ironically enough – rural towns, I’ve seen it all over Wellington.

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  26. Gooner (995 comments) says:

    Why can’t Labour focus on making us wealthier, rather than regulating in an attempt to make everything cheaper?

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  27. wat dabney (3,775 comments) says:

    Obviously the price is too high that people aren’t just buying milk for the hell of it, leaving them to tip it down the drain at their house instead.

    I don’t think supermarkets are quite that dim.

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  28. badmac (136 comments) says:

    Lazybum your numbers are close but not correct. I republished the ones from Fonterra in another thread the other day. Here are the published numbers, they can be adjusted for your 2l “budget” milk brand simple by reducing the retailer margin on “budget” stuff, farmer and fonterras return remains the same).

    Anchor brand 2l at supermarket, retail price $4.80.
    Farmer $1.36
    Fonterra $0.58
    Retailer $2.14
    GST $0.72
    Total $4.80

    These are the numbers (not percentages) published by Fonterra (the retail margin wasn’t published, but it was only a simple subtraction). Fonterra sells direct to supermarkets (but the vast majority of the markup is made by the Progressives and such), the market owner only gets a small margin (same as petrol). Don’t blame the Supermarket owner, its the faceless middleman taking the windfall profits, in fact the retailer could honestly claim only about 5-12% margin on milk.

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  29. kaya (1,360 comments) says:

    wat dabney – there was a news item last year in which the supermarkets brought the police in to arrest Dunedin students who were raiding the bins at the back of the stores. They called themselves “freegans”, what a great name!
    These bins were full of perfectly good food, usually stuff which had just gone past the “use by” date.

    From the UK:

    http://www.guardian.co.uk/commentisfree/2011/feb/15/bins-freegans-leftover-food

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  30. peterwn (3,275 comments) says:

    One of the ‘drivers’ for this issue is retail milk is cheaper in Australia than in NZ. An interesting question is ‘why’. Possibly there are ‘town milk’ infrastructures in and around the major cities which may have economies of scale not readily achievable in NZ. Alternatively (and as well) there may be implied subsidies for town milk supplies there. For example it may be easier to get town and country planning consents for town supply dairying than for butterfat dairying.

    In NZ there were traditionally separate ‘butterfat’ and ‘town supply’ infrastructures using Friesans for town supply and Jerseys for butterfat. Butterfat herds are bred seasonally while with town supply herds the cows are ‘tupped’ (I cannot think of a better word) in rotation throughout the year. A town supply contract was considered more lucrative than a butterfat contract, but suppliers had to work to quotas (there was a penalty for short supply and oversupplied milk was purchased at a discount price). It now seems that retail milk is very much anciliary to general dairying.

    I do wonder however it Fonterra allocates a disproportionate amount of overheads to domestic supply of milk and cheese, possibly as high as they can short of being accused of subsidising dairy exports. Whilst someone else is free to set up a ‘town supply’ milk infrastructure and the sums may look promising, there would be significant business risks in setting it up under the ‘shadow’ of Fonterra. Regulatory action to alleviate such risks, mainly stopping any predatory pricing or similar response, may be sufficient to encourge more competition in the retail milk area.

    Possibly another way of reducing the cost of domestic milk is to do away with pasturising. There is now such strong health supervision of herds, that the health risks of unpasturised milk would nowadays be minimal.

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  31. reid (16,509 comments) says:

    Why can’t Labour focus on making us wealthier, rather than regulating in an attempt to make everything cheaper?

    Oh but they do, Gooner.

    By lifting the min wage every 5 mins like they do when they’re in power, they’re making their base wealthier all the time. This is their idea of a growth strategy.

    This is why they are mental and should not only never be elected but should in fact be rounded up and put on an island somewhere, where they can’t do anyone any more harm. Not GB island though that’s too valuable, something like White Island off Whakatane would be my pick.

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  32. slightlyrighty (2,475 comments) says:

    Milk is cheaper in Aussie because supermarkets treat it as a loss leader.

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  33. reid (16,509 comments) says:

    Possibly another way of reducing the cost of domestic milk is to do away with pasturising. There is now such strong health supervision of herds, that the health risks of unpasturised milk would nowadays be minimal.

    No way am I drinking unpasturised milk but if its safe albeit with a shorter shelf-life then why not have both types available.

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  34. kaya (1,360 comments) says:

    reid – you couldn’t put them on GB island, most people there live a very practical lifestyle based on the reality that resources are scarce, power is self generated and there are consequences for actions. Labour idealogues would be hunted down like ferral cats and dealt with accoedingly.

    Hang on a minute………………..

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  35. Inky_the_Red (760 comments) says:

    Also Aussie don’t charge GST on food

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  36. nasska (11,580 comments) says:

    badmac @ 12.14pm

    I’m not certain that your figures stack up. I made a comment on another thread the other day to the effect that Progressive/Foodstuffs acted as wholesalers to the supermarkets allowing the retail chains to chant their publicised mantra that their markup was only 5% across the board. I was pulled back into line by another commentator who had close contacts with Progressive & purported that no such wholesale level existed.

    I prefer the example of “own brand” products because labels such as “Anchor” or “Mainland” are just labels created by advertising which allow the brand owners to extract stupid amounts of extra money from equally stupid shoppers. They should be considered separately.

    Given a retail of $3.60/2 litre we have end user GST of 54c & farmer payout of $1.36 = $1.80 as knowns. Presume that the supermarket spin masters are not lying & their markup is 18c – we’re up to $1.98. Fonterra state that they make 58c but no one has told us whether this is a profit markup & whether it includes all transport, energy, labour & packaging costs. Total is now $2.56 leaving $1.04 dropped into a black hole.

    Fonterra’s 58c if it is inclusive seems ridiculously low. The supermarket markup as stated seems ridiculously low. Bring on Reid’s idea of disclosure & watch the lying bastards head back to the woodwork.

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  37. wreck1080 (3,923 comments) says:

    Fonterra can set prices to whatever they like. This is called capitalism and if you don’t like then move to Nth Korea.

    The real issue is why would Kiwis think milk is expensive.

    My opinion is that we are a highly taxed, low wage agrarian society with ridiculously priced housing in a remote corner of the world.

    I’m taxed up to 48% of my wages (33% income and 15% GST).

    No wonder there is a lot less money to pay for milk price increases, many people are barely keeping afloat.

    All the whiney whiney complainers out there should ask themselves who they voted for in the last few elections. The only political party that seriously looked at improving the NZ economy were Act, and they were given the two fingered salute.

    So, I say good riddance and that New Zealanders are getting what they asked for (in the election).

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  38. badmac (136 comments) says:

    The numbers I posted are Fonterras. They have no reason to lie about what their or their farmers margins are (because they would be slaughtered if they were found to be withholding the truth). So only people sitting hoping the sunlight goes away and infact in some places spinning (“our overall Margin across all items at the supermarket is 5%”) are the middlemen (progressives et al). Check there profitability in the last few years. That profit is middleman markup not the scraps left for their owner/operators (who don’t do badly either) ie on average 5%.

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  39. the deity formerly known as nigel6888 (852 comments) says:

    Reid made a point earlier that is worth reflecting on. I am not bagging you reid, rather, you put the argument succinctly.

    “I struggle to understand why we pay what we do when domestic milk doesn’t have the shipping costs involved. And someone in the supply chain is whacking on some huge mark-ups, which I’m not interested in tolerating.”

    Actually we don’t know what the shipping and logistics costs are for servicing the local market. Bulk shipment of powders is something that logistics channels are very well equipped to do. The goods have a very long shelf-life, and there are huge economies of scale.

    Cool chain logistics spread all over New Zealand, sharing a perishable product – milk into every corner dairy (kiwis don’t like UHT) is a huge undertaking in a long thin under-populated country. Modern coolchain logistics are a real world miracle, but I suspect that the costs per unit/km are a lot higher than the cost of taking milk powder to China.

    I actually don’t have the figures, and I would love to believe that either price speculators, evil monopolistic supermarkets, or big Dairy in the form of Fonterra are abusing local consumers.

    But is it actually true? I suspect not, but I do think that even the threat of introducing price controls is a very bad idea, for all of the reasons outlined above.

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  40. nasska (11,580 comments) says:

    …”Fonterra can set prices to whatever they like.”…

    If a competitive market exists I’m 100% behind you. The problem is that it doesn’t. When Fonterra was formed from the various other dairy co ops it destroyed competition apart from two small processors in the Waikato & Westland plus a smattering of small cheesemakers & boutique operations supplied with milk from Fonterra.

    I don’t want to see regulation, neither do I want to be ripped off by a monopoly so in the absence of competition I want to see disclosure.

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  41. nasska (11,580 comments) says:

    badmac @ 1.28pm

    I agree with you that the profit is going to the middleman but no one will admit that they exist & I can’t figure how to lever the truth out of the lying bastards.

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  42. CharlieBrown (1,014 comments) says:

    Going to the dentist costs me alot of money, perhaps the government should step in and regulate that dentists charge less, even if it means that in the future going to the dentist may be cheap but almost impossible to get an appointment due to the fact that no dentist wants to operate in NZ anymore.

    My neighbour, the mechanic should charge me less now because I live close to him and it is his duty to charge less to people who live near him.

    Everyone that is calling for price caps on milk should then look to charge their services to farmers for cheaper than everyone else, because that is effectively what they’re asking farmers and supermarkets to do. We live in a global economy, we depend on other countries to buy our stuff, and the fact is, NZ makes up a tiny fraction of the total buyers of NZ milk.

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  43. KH (695 comments) says:

    It’s clear that NZ consumers ( and businesses too) are usually screwed on the price of most things provided by the big combines. Milk, phones, electricity etc etc and etc.
    I not going to do this but —–
    1. The price of milk to the consumer seems to be about 3 times the farm gate price.
    2. What is there to stop somebody setting up in business. Buying that milk from farmers and retailing it. An obvious opportunity.
    What stops that appening.
    a. Artificial barriers to entry. Set up and controlled by Fronterra ? Not good enough.
    b. Real barriers to entry. eg. the margin is not enough to cover the costs ? eg you can’t blame those presently in the business.
    c. NZers are moaners and not able to get out and hustle ? ( Well usually – even if only partially)

    If there is even a hint of (a) then anybody who promotes markets should be advocating the government crush that power. Although price controls are stupid, there are ways of good crushing that power. Mainly around protecting the ability of others to enter the market.

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  44. CharlieBrown (1,014 comments) says:

    KH – consider this:

    1. Tanker drivers have to be paid, trucks have to be maintained, factories have to be maintained, milk has to go through various forms of pasturisation, back office staff have to be paid, compliance, health and safety regimes have to be met, supermarket staff have to be paid, supermarket distribution has to be paid for, supermarket rentals and costs have to be met, isurance costs have to be met. This is part of the reason why prices increase from the farm gate.

    2. Nothing is stopping them from doing that. In fact, several companies are processing their own milk. If their is any barriers to entry it is the cost of setting up a factory, and meeting regulations.

    The fact is, there is no NZ domestic milk market, it is a global market. NZ milk producers compete internationally, if farmers were to sell above market prices in NZ, international companies would come in and sell it cheaper.

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  45. KH (695 comments) says:

    To Charlie Brown @2.10
    We probably agree. I’m happy to accept that the price of milk might be right. Given the costs.
    But also happy to accept that there might be artificial structural barriers to entry. Constructed by the incumbent.
    Despite some names other than Fonterra being bandied about. I have yet to see any story that that there is any REAL alternative to Fonterra.
    We won’t know until we see somebody that tries it. And what their experience actually is.

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  46. side show bob (3,660 comments) says:

    Been a dairy farmer I’m tied of the bitching and moaning from some about milk prices. As you all know we don’t set prices and are expected to live on what ever crumbs fall form the market table. We are finally beginning to see some real returns and the whole country will benefit in the end. It seems to me farmers and Fonterra are the wiping boys being set upon by the national media, after all we have no real political clout and make handy targets . It really pisses me off when you have brain dead townies moaning about the price of milk on the nightly news but fail to recognize the huge inflating of all food prices. Putting a cap on milk prices would be like pissing on a bonfire. Anyhow cap the milk price and see what happens next, meat, bread , fruit, vegetables, power, water, the sky’s the fucking limit, it’s a Pandora’s box and any government contemplating such a move would be fucking mad.

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  47. reid (16,509 comments) says:

    So bob as someone involved in the supply chain would you have a problem with my proposition of not capping but publishing the margins, for everyone in the supply chain including yourself? That is, if it were a choice between either a market cap or publishing, which of those options would you prefer. (There is no third option in this imaginary scenario.)

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  48. side show bob (3,660 comments) says:

    Well said Charlie Brown.

    KH, Fonterra supplies are allowed to divert 20% ( I think the figure is correct) of their production to do of as they wish. Some near urban centers sell raw milk at a much reduced rates of those paid at supermarkets. The trouble is most farms are far removed from would be consumers and many believe drinking raw milk will lead to their instant demise, which of course is total bullshit.

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  49. krazykiwi (9,186 comments) says:

    I wonder how many people who complain about milk prices purchased a lotto ticket in the last month? Damn, they’re expensive. Let’s regulate!

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  50. side show bob (3,660 comments) says:

    reid of course, why not publish the margins. I know what I get in the back pocket as does the rest of New Zealand, I’ve nothing to hide. We are at the bottom of the food chain mate. I would welcome a bit of sunlight but my only proviso would be why just stop at milk prices. Once again the sky’s the limit. I don’t fancy your chances though, way to much profiteering to hide.

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  51. reid (16,509 comments) says:

    Going to the dentist costs me alot of money, perhaps the government should step in and regulate that dentists charge less, even if it means that in the future going to the dentist may be cheap but almost impossible to get an appointment due to the fact that no dentist wants to operate in NZ anymore.

    Not really a valid comparison, CharlieBrown. You see, dairy products aren’t dental services. If we lived in a country that for some reason had a particular ability with respect to churning out good dentists left right and centre, a bit like Germans churn out engineers, then maybe you would have at least an arguable comparison, but this is not the case, in NZ, is it.

    We consumers in NZ are positioned exactly as consumers in oil exporting countries like Brunei and the ME, are. Those consumers get really cheap oil and no doubt the govt run oil coys over there, have political reasons as well, for keeping it down however fact is, it should be cheap cause they only have to distribute locally. So why is it different for us, here, with dairy?

    It is different, isn’t it. It is the case is it not that we pay here a lot for dairy, and we are told the reason is this is a global product. We are told this, aren’t we.

    Why do some people seem to think that the “market” doesn’t need guidance and direction in order to avoid pricing distortions which arise when monopilistic situations happen with monopolies, duopolies and cartels and to prevent it from running with itself as happened recently with the lamentably under-regulated financial markets when CDOs hit the market.

    You can’t just leave it to run itself, that’s nuts. Fact is, we have two broken markets in this country, the electricity market and this one. Both of them need addressing, by interference: i.e. changing the way they operate. That’s right. We intervene in it. Just the same as we do with any other living, operating thing we have in the whole wide world. I just fail to comprehend some people who argue we should never do that, under any circumstance whatsoever. That to me, is just plain wrong and it’s exactly the same phenomena you see when lefties allege something mental like “the failed policies of the 90’s.” Both market purists and lefties who say things like that, are being ideologically driven when they do that.

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  52. BlairM (2,341 comments) says:

    If New Zealanders don’t like the price of milk, they should invest in dairy farming, as it is clearly lucrative. Then they could afford to have as much milk as they wanted.

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  53. ben (2,380 comments) says:

    NZ could even face milk shortages.

    NZ will face milk shortages. Period. That is what price caps do. The government can then intervene and force minimum quotas to be sold domestically. Then avoidance will occur via quality. So more rules will have to be passed. At that point milk distribution is effectively nationalised, there will be a Minister for milk distribution who will be required to answer questions in parliament about how John in Southland or Bill in Waitara couldn’t get milk on day x at time y. Etc.

    In short, a clusterf**k.

    Christ if English caves on this, a National minister with plenty else on his plate, and any number of good reasons to say no, I’ll eat my hat.

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  54. ben (2,380 comments) says:

    Reid your arguments are ridiculous. Yes, people in some oil producing nations pay less than the world price for oil. Where that occurs, without a single exception, to my knowledge, they are forced to queue for hours to fill up. Those people can’t understand why this is when their country is awash in oil, but it is the automatic product of capping price. Where price rationing is suppressed then non-price rationing takes over in the form of queues. Whether the product happens to be produced on this side of a political border or not counts for nothing. The rule is as true for milk as it is for dentists. It is also true even where monopoly is a problem. Queuing is a horribly inefficient i.e. welfare destroying way to distribute goods. It is no good giving people a chance to save $2 on 2L of milk if they are forced to wait an hour in line for it, or to go without entirely.

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  55. gravedodger (1,566 comments) says:

    After some 50 comments we finally have good ole charlie brown and sideshow bob come along and point out the bleeding obvious.
    If anyone was making inordinate profits why in gods name wouldn’t Synlait, Tatua, Westland dairy or some other entrepreneur be rushing headlong into the market to make a killing. Simple the domestic market in New Zealand is SMALL, get it, TOO BLOODY SMALL, so procurement, transport, quality control, packaging and marketing chew up a high proportion of the money leading to what looks like over pricing of products with high weight, volume and storage/display factors coupled with limited shelf life.
    The only barrier to an entrepreneur entering the market that so many economic illiterates are shrilling about is the sum of the costs listed above and the realistic truth that the world market value of milk products sets the price of milk. Just be grateful that with the tightly regu;ated market in milk products the bloody socialists only charge GST and unlike petrol dont see the dairy industry as another opportunity to create tax income to fund their ideas and nightmares.
    However with idiotic taxes such as the ETS, and the anti business campaigns by watermelons that is changing.

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  56. ben (2,380 comments) says:

    Reid

    You can’t just leave it to run itself, that’s nuts.

    Another ludicrous statement. That is how all markets work. There is no person in charge of bread distribution in Auckland or of national PC manufacturing or Wellington second hand car parts. Yet bread, PCs and car parts are available in boundless quantity to anyone who wants them.

    As is milk.

    Shortage is all but entirely associated with places where somebody is in charge. Education. Health care. Prisons. Even the most casual observation should quickly convince anybody, at least one with an open mind, that the best way to produce shortage is to hand somebody control of an entire industry. Which is precisely what you argue for in milk.

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  57. Lee C (4,516 comments) says:

    New Zealand would be committing ‘collective genocide’ if the government agreed to demands for an independent commission to set the domestic milk price, claims Fonterra chief executive Andrew Ferrier.

    “It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around us charging what teh fuck we want to ” 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 for our profits. There are internally established milk prices in the US and Europe and it is commonly known to be failing to produce grossly marked-up profits for the producers. It is everything we have been lobbying against for 30 years [in overseas markets].”

    DPF agree – regulation would undermine our trade policy. Which is to lobby against regulating the ability of a monopoly to charge wat it likes.

    “When governments intervene in industries they cause enormous secondary problems that are not easy to foresee.”

    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.”

    So in other words – Fonterra reserves the right to hold a gun to our collective heads, charge what the fuck it likes and threaten to render milk-shortages in the domestic market if we don’t like it.

    So just shut up and pay. What is this? Peak Milk Crisis?

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  58. reid (16,509 comments) says:

    deity @ 1:32 you make very good points. It’s true for a NZ dairy processing plant the liquid milk, icecream, yoghurt and nutraceutical production lines are very secondary to the powder output on a volume basis and in time it may well not be worthwhile even servicing the domestic market.

    However what has indicated to me is the recent sharp across-the-board increase of which dairy is only a part, yes, but the point is, what has changed apart from the overseas commodity prices which justify this increase? If input prices had risen significantly I would have understood and accepted but they haven’t. Prima facie it’s frankly the very definition of rorting: i.e. taking advantage of an external circumstance to extract an unreasonable price from people unable to exercise an alternative choice. Fuck that.

    Not in my country.

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  59. Lee C (4,516 comments) says:

    I think it would be instructive would it not, to see Ferrier’s reaction if consumers wre to threaeaten to embargo domestic sales of milk for one week. Would it be interesting to see how suddently Free-Market choice would be labelled as a stipendary and unfair use of leverage.

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  60. Viking2 (11,488 comments) says:

    Last time I looked Fonterra brought home 24% of our export income.
    All you moaners should get on your hands and knees and pray diligently to the God Fonterra and give thanks for standard of living they allow you.
    Take away that 24% and decide if you can afford your house, car, wide screens, health care, etc.

    Some people have no idea when they are well off.

    The more milk costs the better off we are. And its still cheaper than rum.

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  61. Lee C (4,516 comments) says:

    Hope you will excuse the typos – I just get quite excited about getting ripped off and then being threatened if I don’t pay. That’s not a free market that’s a protection racket.

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  62. Viking2 (11,488 comments) says:

    Ah no Leec.
    All that surplus milk would be exported very quickly.

    How can you be so dim witted as to not recognize that successful business always can sell more than it produces.

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  63. reid (16,509 comments) says:

    Another ludicrous statement. That is how all markets work. There is no person in charge of bread distribution in Auckland or of national PC manufacturing or Wellington second hand car parts. Yet bread, PCs and car parts are available in boundless quantity to anyone who wants them.

    Yes ben having worked in capitalism all my life I do understand how it works. What I am referring to is the steering, guidance and throttle-control mechanisms that every economy must have and actually does already have – they are used every day. A great example of a perfect exercise of all of these and more all operating in harmony for several decades is the Celtic Tiger from the 80’s to around 2005. In 2001 they exported more software than the US, for example.

    Lefties of course point to Ireland now and proclaim the program a failure, never of course understanding the two things are not even related but that’s lefties for ya, isn’t it.

    Anyway, that’s what I was meaning. I wasn’t suggesting we engage in regulatory minutai, such as Muldoon did with his Supplementary Minimum Price regime, I was suggesting we recognise this aspect of “the market” isn’t evidentially producing beneficial outcomes for consumers so lets change it, not by regulation, but by sunlight. Thus employing the free-market mechanism known as “vote with your feet.” Why precisely is that not a reasonable response to this acknowledged and accepted currently occurring undesirable phenomena?

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  64. nickb (3,687 comments) says:

    so typical of kiwis to bitch and moan about milk prices…

    many dairy farmers struggled badly for years with heavily geared farms and poor payouts, finally they get some rewards due to huge world demand and fuckwits are jumping up and down because a litre of coke is cheaper than a litre of milk.

    Oh and ben, great comments, as always.

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  65. Lee C (4,516 comments) says:

    Yes successive governments have signally failed to grow any alternative productive sectors, and relied on Dairy to bale them out, and now, when the people are starting to feel the pinch suddenly the support we provided to keep this cosy little arrangement going is forgotten and those who bankrolled the insustry are labelled ‘moaners’. And of course the great Dairy Baron Fonterra considers itself bullet-proof – for is it not running the nation? And we wonder why Governments go on bended knee to them.

    Petrol, and milk. Petrol and milk. etc etc. Same philosphy -“pay up and shut up’.

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  66. Lee C (4,516 comments) says:

    reid are you seriously sugesting we are allowed to know what we are paying for? Haven’t you been cowed into submission by the threat of not being able to buy any milk?

    Unless you are from China, I mean?

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  67. side show bob (3,660 comments) says:

    reid you seem like a decent sort of chap and are somewhat worked up about this issue, may I suggest a way forward for your good self. Why not put your money where your mouth is. I would assume there is nothing to stop you registering on Fonterra’s auction site. Why not buy milk on line off Fonterra, bottle it then flog it off, cut out the middle man. If you are so sure the system is bent you should have no problem making a handsome profit, might take a while to return your investment but the townies would love you.

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  68. Pete George (23,591 comments) says:

    Petrol, and milk. Petrol and milk. etc etc. Same philosphy -”pay up and shut up’.

    It’s a bit easier to buy your own cow than tap your own oil well and refine your own fuel. A cow could cover both milk and fuel if you dried the pats and captured the methane.

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  69. nasska (11,580 comments) says:

    I don’t remember anyone on this thread begrudging the cockie the price he gets for his product. Neither do I think that Fonterra’s take of 58c on 2litres to be very high at all. What we would like to know is where the difference between the cost of putting the product in its container & its retail price goes.

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  70. CharlieBrown (1,014 comments) says:

    Reid – I take it you are happy give the services of whatever your profession is to everyone on your town block for a heavily reduced rate, probably below what it costs you? That is what you are expecting farmers to do.

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  71. gravedodger (1,566 comments) says:

    pete g @ 4.44, then the bloody cow gets metabolic disorder and the vet charges a couple of hundy to visit, the fodder merchant sells the dietry supplements to correct the problem,that takes another hundy, some nosy bastard watching the sick animal apparently unattended and calls the spca, the cow dies and suddenly the cheap milk just got a whole lot dearer. Not forgetting the digger hire.
    A bloody good idea though because by the time the cruelty charges have been dealt with the real price of production will at least been demonstrated.
    I have a small rural block and there are no bees around apart from bumbles so I asked a mate who is a retired beekeeper about a hobby hive and when he stopped roaring with mirth he said why dont you have a cow and a dozen sheep at least you have a sporting chance of success with them after 40 something years of livestock farming..
    Your idea pete may be the only way the truth will emerge for so many of the financial midgets commenting here.

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  72. the deity formerly known as nigel6888 (852 comments) says:

    The bottom line is clear. If the demand increases above supply, then the market clearing price for a product moves. Its pretty clear that there is a global food shortage taking place at the moment, demand is up, and prices have strengthened in real terms (although we are well below the real price of food in the 1930s).

    What the case for the affirmative is arguing is that Fonterra subsidise domestic consumers. As has been pointed out by a number of commentators

    1. NZ is dependent on global milk sales, so interrupting that supply, or interfering with prices seems unwise, particularly as we are more vulnerable to non-tariff barriers than almost anyone else. Why create a weapon for our competitors?

    2. price fixing almost inevitably leads to domestic market consequences, generally through supply switching, or rationing. If you regulate volume, then people will cheat, either through cutting the milk with water (or whey, or worse) or simply bribing the bureacrats trying to enforce the rules. If that fails you then typically see heavy investment in politicians. Its amazing what a new car, a fact finding trip and a promise of a Board seat or good jobs for the kids can achieve.

    3. history suggests that fixing the consequences of the distortion is usually worse that the original problem.

    So I struggle to understand why demanding that a company subsidise its product in the domestic market to avoid political “trouble” is a good idea? Winston, call your office!

    If you look into it, the global milk price is actually set by the US milk price, and now that the Europeans have stopped dumping subsidised product onto world markets, the world price is moving to stabilise around the US price.

    The US price is a factor of intensive containment systems, which are heavy users of corn and energy. There is currently a global food crisis underway, caused not least because corn is being converted to biofuels rather than being used as food. This is another example of the unforeseen consequences of well meaning regulation.

    But look on the bright side, that really expensive litre of milk is helping to save the planet – and only an uncaring brute would put cheap milk above our children’s future!

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  73. CharlieBrown (1,014 comments) says:

    Lee – “I think it would be instructive would it not, to see Ferrier’s reaction if consumers wre to threaeaten to embargo domestic sales of milk for one week. Would it be interesting to see how suddently Free-Market choice would be labelled as a stipendary and unfair use of leverage.”

    What an idiotic thing to say. You obviously have absolutely no freaking clue about the milk trade market. Last time I checked, NZ consumed less than 7% of the total milk output from NZ. Go ahead, organise a boycott, Fonterra, plus every other exporting nation would only take a small hit from the slight drop in demand.

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  74. Pete George (23,591 comments) says:

    “NZ consumed less than 7% of the total milk output from NZ”

    You would only get a fraction of the population who could be bothered to boycott.And milk will only be part of that, how much is used commercially, like Cadbury, and how much is cheese, yoghurt, icecream etc.

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  75. Lee C (4,516 comments) says:

    Charlie Brown you defeat the very argument that is raised to defend no regulation. So only a piffling 7% of milk is consumed in Dometic markets, yet in defence of the current prices and refusing to allow scrutiny of domestic prices or even (heaven forfend) a recommendation about the price being mooted, we are seriously expected to swallow the argument that that the regulation of, or investigation of that piffling 7% of total sales would be enough to cause Fonterra to run riot on milk exports and cause an added pecuniary expense on consumers?

    It’s a bullshit argument. Either regulation on the Domestic milk sales are enough to “cause enormous secondary problems that are not easy to foresee” or, based on your premise such investigation or regulation would hardly dent the present circumstance.

    Can’t you see the bullshit and implied ‘collective suicide’ threat in the language of the post? And rardi rardi rah out come all the cheerleaders to – well cheer it on. I wouldn’t buy a used car off this man.

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  76. reid (16,509 comments) says:

    If you are so sure the system is bent you should have no problem making a handsome profit, might take a while to return your investment but the townies would love you.

    I’m not saying it is bent bob, I’m saying there is no other apparent alternative explanation other than someone is rorting.

    This is not a subjective observation it’s based on the fact input price rises don’t even partly let alone fully explain the rises we have seen, over the last few years in particular the last few months.

    If this isn’t reasonable cause for an appropriate regulatory authority to investigate the possibility of price gouging, then what is?

    If there isn’t any “appropriate regulatory authority” either in Treasury, MED or the Commerce Commission then apparently, according to actual reality, one needs to be setup, right now.

    Is anything about the above unreasonable?

    If so, how?

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  77. reid (16,509 comments) says:

    Reid – I take it you are happy give the services of whatever your profession is to everyone on your town block for a heavily reduced rate, probably below what it costs you? That is what you are expecting farmers to do.

    No, that’s not what I expect farmers to do CharlieBrown and if you think I am asking them to do that I suggest you re-read every single comment I’ve made on this thread today for you have obviously misunderstood every single word.

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  78. ben (2,380 comments) says:

    Reid

    Anyway, that’s what I was meaning. I wasn’t suggesting we engage in regulatory minutai, such as Muldoon did with his Supplementary Minimum Price regime, I was suggesting we recognise this aspect of “the market” isn’t evidentially producing beneficial outcomes for consumers so lets change it, not by regulation, but by sunlight. Thus employing the free-market mechanism known as “vote with your feet.” Why precisely is that not a reasonable response to this acknowledged and accepted currently occurring undesirable phenomena?

    I suppose nobody can have any objection to putting more information in front of consumers. But if that’s as far as it goes then it will achieve nothing. Consumers already pay a price at the supermarket, having weighed the many alternatives. There’s no reason to expect them to do anything different once they are informed of the breakdown of of the price they pay, since the fundamental thing they are buying is a dairy product, not a political or economic analysis of what’s reasonable.

    Now you must surely know this, so if the end point here is not regulation of some kind, then what?

    This statement is breathtaking: “I was suggesting we recognise this aspect of “the market” isn’t evidentially producing beneficial outcomes for consumers” What blows me away is how anybody could take dissatisfaction with higher prices and turn that into “isn’t producing beneficial outcomes for consumers”. Absolutely 100% no doubt about it – milk production produces very very large benefits for consumers. We know this in part because not one purchaser of milk and dairy is required to buy it. Among those consumers that choose to, out of all the non-dairy alternatives, convinced only by fact that the combination of dairy price and quality is superior to the alternatives. Surplus is also implied by inelastic demand. Dairy prices have risen and yet demand has not collapsed. This implies large benefits for consumers in excess of the price they pay.

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  79. ben (2,380 comments) says:

    Reid

    If there isn’t any “appropriate regulatory authority” either in Treasury, MED or the Commerce Commission then apparently, according to actual reality, one needs to be setup, right now.

    Is anything about the above unreasonable?

    Absolutely this is unreasonable in view of the fact that regulators do not justify their own existence by adding value even where market failure is obvious. As far as I know the economic literature finds no unambiguous examples of regulation adding value (meaning raising long run consumer benefits) – and there has been plenty of research on this question. Here there is no obvious market failure, and yet you are asking for regulation.

    Now didn’t you just finish telling me you were not seeking regulation? What happened to “vote with your feet”?

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  80. reid (16,509 comments) says:

    This statement is breathtaking: “I was suggesting we recognise this aspect of “the market” isn’t evidentially producing beneficial outcomes for consumers” What blows me away is how anybody could take dissatisfaction with higher prices and turn that into “isn’t producing beneficial outcomes for consumers”.

    What can I say, ben?

    Yes I do find myself quite breath-taking when I look deeply at my magnificent specimanship in the mirror, which I do quite a lot.

    What can I say?

    There’s no reason to expect them to do anything different once they are informed of the breakdown of of the price they pay, since the fundamental thing they are buying is a dairy product, not a political or economic analysis of what’s reasonable.

    Au contrare ben, if you had one of those clever ACT-like summaries of the dairy-price supply-chain margins at the entrance of every supermarket and every single tiny detail available on the internet, together with various front-page stories as the policy progresses, there is every reason to expect people to change their behaviour. What planet do you live on?

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  81. nasska (11,580 comments) says:

    ben @ 5.46pm

    ….”Consumers already pay a price at the supermarket, having weighed the many alternatives.”…..

    We are discussing retail milk….what alternatives?

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  82. the deity formerly known as nigel6888 (852 comments) says:

    Reid, you seem to be arguing against the laws of supply and demand. This is not about ideology or ACT (where did you get that from, except your mate Winston), this is about the inevitable result of demand for a product growing faster than supply, and thereby pushing prices up. Nothing magic about this.

    Your only argument is that you don’t like this. Well too bad, harden up. New Zealand either trades globally or it doesnt. End of story.

    Milk is not an inelastic good, it is a food source with many substitutes available. Nor is milk availability a public good, regardless of your own preferences.

    If you think about it, drinking a food designed for baby animals of another species is pretty weird.

    Milk is A source of calcium and nutrients, thats all, there are plenty of others.

    Anyway, if you, as a matter of public policy believe that milk is a necessary food, and you as a matter of public policy want to see milk prices lower than the market price, both of which are entirely defensible positions incidentally, the only sensible solution is an explicit subsidy for domestic consumers – perhaps through a voucher or otherwise means tested for poor people.

    The only problem is paying for it, and convincing others that this is a good idea – as it happens there is an election coming, so I guess we will see the result soon enough.

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  83. ben (2,380 comments) says:

    What can I say?

    Well you could explain your one sided analysis that confuses price increases with the elimination of all benefits to consumers. Your argument for regulation depends on this.

    Au contrare ben, if you had one of those clever ACT-like summaries of the dairy-price supply-chain margins at the entrance of every supermarket and every single tiny detail available on the internet, together with various front-page stories as the policy progresses, there is every reason to expect people to change their behaviour. What planet do you live on?

    What planet do YOU live on? Consumer information does not do what you think it will. Consumers at fast food restaurants when fully informed of the nutrition in their meals have been shown to increase their consumption. Both smokers and drinkers over-estimate the dangers of their respective drugs. There is no evidence at all that product labelling has reduced the obesity epidemic. Consumer information either doesn’t change behaviour, or changes it in ways that the planners like yourself don’t anticipate.

    And in each of those instances, there is at least a reason to think between product labelling and consumption choices. Your proposal doesn’t even have this merit.

    Anyway, if the problem is that the price of milk is too high, then consumers have nothing else that is relevant to the problem to learn beyond what they read the price label.

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  84. ben (2,380 comments) says:

    nasska: the alternatives being all the other things consumers can choose to spend their money on. The average supermarket has 10,000 products and the average economy has about 10 billion. I made both numbers up but you see the point.

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  85. the deity formerly known as nigel6888 (852 comments) says:

    I think we are wasting our time on rational debate ben. Sadly however, this is going to be an election issue, and we are going to see the economically illiterate attempt to kill off our only successful industry for the ‘sake of the little people’.

    sigh.

    Hence my solution, if we are going to do this damn fool thing, then lets do it in the least destructive and stupid way.

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  86. Rex Widerstrom (5,354 comments) says:

    dime suggested (way back up there^^)

    these sorts of laws are a matter of time. with the emerging middle classes in india and china, our food is going to keep going up n up. eventually they will legislate that x amount of nz produced food will have to be sold in NZ and at a certain price.

    I can’t fault dime’s logic. Food security is an issue we ignore at our peril. There’s a reason the Chinese want the Crafar farms, and any other productive land they can get their hands on: their own food security. Which relies on our own short-sighted willingness to sacrifice ourselves at the altar of the “free” market rather than an insistence that New Zealanders come first in our own nation.

    What happens when the billions of Chinese and Indians can afford to buy all our food at prices we ourselves cannot afford to pay? Cannibalism? I just hope that first on the menu are the free marketeers, so they can explain again how well a complete lack of regulation works as I carve myself a slice.

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  87. nasska (11,580 comments) says:

    ben @ 6.45pm

    I don’t deny that there is not a great shortage of things to spend money on in the average supermarket but what has that to do with the price of milk. If I want milk in my cup of tea or coffee a tablespoon of baked beans is not an acceptable substitute.

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  88. ben (2,380 comments) says:

    Nigel, I think what is extraordinary is the refusal by the planners (Reid et al) to acknowledge two things: first, the fact that higher prices reflect scarcity; and second the two essential functions that higher prices perform, which is to create incentives to increase supply, and create incentives among those who can to substitute to other products. Both valuable responses to scarcity, and both undone by price cap or control regulation Reid and his ilk promote. This has nothing to do with ideology. These are features of every market and self-evidently and are obviously useful responses to scarcity. Fundamentally, price control reliably fails because it does not solve the underlying problem that the higher prices were previously reflecting: scarcity. Indeed price control exacerbates scarcity by destroying supplier’s incentives to respond. Basic, basic stuff.

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  89. wreck1080 (3,923 comments) says:

    @nasska :

    If you think milk prices are too high, then, why isn’t someone importing milk from offshore to sell at lower prices?

    Simple enough, that is the way the true market functions.

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  90. the deity formerly known as nigel6888 (852 comments) says:

    thats not a need nasska, thats a preference.

    There is no nutritional need to put milk in tea or coffee, simply a taste preference. There are many other taste preferences and perhaps you can adjust your basket of preferences accordingly. But trying to use public policy tools to impact the price of a preference is pretty dumb thinking.

    Personally I prefer Danish butter on my morning bagel. Should I demand this be subsidised. What about my preference for Swiss chocolate? Brazilan coffee? Actually I also hate paying the world price for wheat, oil and entertainment, perhaps the New Zealand government needs to regulate these industries urgently too.

    If you argued that disadvantaged kids needed milk because the alternatives weren’t as palatable or nutritious, and could demonstrate that there was no alternative source of calcium or protein at near price points, then you have a case, a weak one, but one that can be argued.

    Because if the argument is that it is an essential food with no ready substitutes, therefore availability might, just might, represent a public good – however weak the argument is, its the only one that is respectable.

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  91. ben (2,380 comments) says:

    Rex – your post is total bullshit. Name a single example anywhere in the last century in which a free market produced food insecurity that lead to famine. Then name a single famine in the last century where government regulation, control, interference wasn’t a key feature.

    The evidence is unambiguous: markets improve security. Again, nothing to do with ideology. The track record on this is crystal clear.

    Free trade does not ever feature starving people selling the last of their food overseas! The reasons for this should be perfectly obvious. For that sort of peversity it takes governments interference.

    Also note that there is are world prices for tradeable commodities and the long term trend of all of them in real terms is down. That’s because supply increases have consistently outperformed demand. Your view seems to be that China or India are big enough to monopolise this market, which is obviously false.

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  92. ben (2,380 comments) says:

    nasska: sure, but soy is, or black tea/coffee, or chai latte, or herbal tea, or a glass of water. The fact that consumers choose to bear higher milk prices rather than substitute to these and many other alternatives implies a substantial consumer surplus from milk consumption. This contradicts Reid’s rather childish and obviously false view that there is no consumer benefit here.

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  93. the deity formerly known as nigel6888 (852 comments) says:

    Actually ben, something interesting has happened to world food prices since 2007, they do appear to have kicked up a bit – well below 60s and 70s in real terms, but do appear to have moved. My analysis suggests a number of reasons:

    1. flight to concrete assets – markets have lost confidence in government paper as a store of wealth
    2. massive stimulus packages and “quantitative easing” are going to take us into massive global inflation (see 1 above)
    2. biofuels have seriously distorted grain prices and there is a lag while production comes on stream
    3. increasing wealth has changed dietary preferences in the East.

    These are of course things I think that NZ should be celebrating. We run the best low-cost (pastoral) food production systems in the world. If we stop with the zero-sum thinking, we should spend the next decade getting seriously wealthy as a country – and maybe this time we’ll invest in savings, infrastructure and skills rather than buying playstations. Will we miss the opportunity? Hell, yes, this is New Zealand. Got to punish the evil capitalists!

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  94. nasska (11,580 comments) says:

    the deity @ 7.05pm

    First point. At no stage on this thread have I stated or implied that I am in favour of regulation. I want disclosure of who gets what bit of the total price of milk. I have no problems even with the costs so far disclosed…..problem is that when you add those costs & margins up they only total 75% of current retail. If I’m told who gets the missing quarter than I’m happy & out of the debate.

    So given that I don’t want subsidies & I don’t want regulation why should I bother weighing up needs vs preference?

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  95. Rex Widerstrom (5,354 comments) says:

    ben:

    Name a single time anywhere in the last century where climate has so greatly affected food production.

    Note I’m not banging on about AGW… climate goes in cycles. In Australia we’re going from a cycle of drought to one of heavy rains. To cite but one crop, wheat is being affected by the combination of heat and wet which produces diseases which various studies estimate could reduce yield by as much as 60 percent. For instance this one which concludes:

    Potential impacts from climate change on wheat in WA include a reduction in potential yield in the north and south of the agricultural zone, with a large reduction in the far north…

    Results showed that 34 per cent of the agricultural zone may experience a decrease in potential yield, and only 8 per cent may experience an increase in potential yield.

    Then show me a time in the last century when a nation as populous as China was on the rise and able to pretty much set commodity prices to suit itself and get what it wants.

    That’s the trouble with free marketeers – your models grew out of times when it worked because circumstances were significantly different; when mercantile trade was conducted by sailing ship and no country thought of selling its means of production as opposed to what it produces; you claim they can adjust to take account of huge present and future changes, yet all you can offer is “it’s worked before”.

    I agree it has worked before, and was by far and away the best model for the times. But times are changing. Nations need to move to secure their food supplies for their own people, because future conflicts will increasingly be over clean water and food, not oil, gold, or slaves (all commodities the free market was perfectly capable of handling).

    Or do you think China is greedily eyeing productive land because so many middle class Chinese yearn to live the life of Fred Dagg?

    edit: I see the deity formerly known as nigel6888 has idenitifed another major trend I forgot: the move to turn food into biofuels, further reducing what’s available to feed people.

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  96. ben (2,380 comments) says:

    Rex – your post is non-sequitur. Even if climate and the rise of China is unprecedented, which it is not, the question remains whether markets or regulation provides greater food security. You can assume I get jollies out of markets all you like. I don’t give a fig about one distribution system over another, and I have no idea what model you’re talking about. What I want is food security and the record is unambiguous here: markets do not let people starve. Governments do. Specifically, price controls, tariffs, and quotas produce food shortages that kill people. The reasons for this are well understood. The times are not changing with regard to economic fundamentals. Price caps do not let markets clear and shortages result. They did 250 years ago and they do today. The best way to avoid shortage is to keep those controls out of food distribution. There is no reason or evidence to think your controls will – this time – not kill people.

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  97. CharlieBrown (1,014 comments) says:

    Lee C – Your pretty good at giving examples of how you have no idea how the dairy industry works. Milk is sold on the open market – this market sets the price. Fonterra AREN’T selling in NZ for higher prices than what they are selling overseas. Forcing Fonterra to sell dairy products in New Zealand for less than they do overseas would be like forcing Fruit growers to sell in NZ for cheaper, or making every exporter sell cheaper locally.

    If we want to make selling milk cheaper in NZ then why not let farmers sell some milk from the farm gate, its harmless, countless NZ folk have grown up with milk stright from the cows teat. This would cut out all the manufacturing costs, but I dare say, all the socialists will be against that as it removes some nanny state regulations.

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  98. ben (2,380 comments) says:

    edit: I see the deity formerly known as nigel6888 has idenitifed another major trend I forgot: the move to turn food into biofuels, further reducing what’s available to feed people.

    I agree with this. I suspect but do not know this is mainly responsible for the recent rise in food prices around the world. The case for allowing prices to increase to reflect the scarcity is enhanced by biofuels. Given scarcity, higher prices are preferred to shortage and famine – although plainly the higher prices make life very difficult for many in developing countries. But I submit that is better than famine. The higher prices are stimulating investment in new food production, which is an obviously helpful outcome that is destroyed by price regulation.

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  99. ben (2,380 comments) says:

    Or do you think China is greedily eyeing productive land because so many middle class Chinese yearn to live the life of Fred Dagg?

    I don’t care about the motivations of the buyers. If they want to write an agreement with the current owners to buy land on this island, let them.

    It has no relationship with food security, though, because there is a global commodity market. Even if the new owners of Crafer stop selling to me, I can buy from any of a billion other farmers on the planet, and there’s nothing the Chinese can do to stop me or any other New Zealander, or indeed the markets and suppliers that operate here.

    The one organisation that can stop me is the New Zealand government, and if they do, that’s when food security issues arise. I have a lot less security when I can buy from only one supplier or am barred from paying more than $X than I have when buying from a billion producers at whatever price we agree.

    Provided food stays a global commodity, there is no relationship between food security and who produces what in this particular country. Only if the NZ government intervenes does food security become a problem.

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  100. Rex Widerstrom (5,354 comments) says:

    @ben:

    I don’t give a fig about one distribution system over another, and I have no idea what model you’re talking about.

    I’m not talking about any model. I’m raising the prediction that was first raised by dime (and pretty much ignored) and saying it makes sense to me, and that we need to do something about it.

    I don’t think notionally allowing China, India and the rest of the world to “strip mine” NZ of the foodstuffs it produces – which a free market will inevitable lead to as China and India experience unprecedented levels of growth – it’s estimated that by 2020 China will be the world’s single largest economy – is wise.

    Incidentially, how is this not unprecedented, given that none of the other large economies have disappeared to make room? There’s now a huge market of billions of people suddenly able to outbid us for anything they want, including food.

    Nor, however, do I think the old command economy colutions of price caps etc will work. We need to consider these changes as what they are – something we’ve never faced before – and come up with some new paradigms. I’m not claiming enough economic kowledge to have the detail, and don’t have the time to do the level of research I’d need to be able to proffer workable policies, but I do know that common sense suggests that if you’re a peasant who’s getting by trading with other peasants and suddenly a nobleman rides into town with a casket full of doubloons, you’re not going to have much on the dinner table come winter.

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  101. ben (2,380 comments) says:

    I don’t think notionally allowing China, India and the rest of the world to “strip mine” NZ of the foodstuffs it produces – which a free market will inevitable lead to as China and India experience unprecedented levels of growth – it’s estimated that by 2020 China will be the world’s single largest economy – is wise.

    No, that’s wrong. It does not follow from the rise of China and India that prices will rise, or that New Zealanders will be unable to meet the price that results. Your claim is wrong in every way. First, there is plenty of spare land for additional food production should it be needed. Second, the amount of land devoted to food production is actually declining, even as demand increases. Why? Because productivity per hectare is growing faster than demand. Third, the real hump was 40 years ago when world population growth peaked. The green revolution saved the world from starvation. Fourth, there are no examples and no reason to think inhabitants of first world economies will ever be outbid on food, however big China or India is, for the simple reason that supply is elastic. It is cheaper to add new supply than to let entire nations be outbid. Common sense says there is money to be made by supplying countries that will otherwise go hungry, provided governments don’t write rules that outlaw sales above a certain amount..

    Not unprecedented because population growth and demand growth was at its maximum 40 years ago. Climate has always changed, crops have always failed. By comparisons today’s stresses are mild. Share of world land devoted to food is declining.

    but I do know that common sense suggests that if you’re a peasant who’s getting by trading with other peasants and suddenly a nobleman rides into town with a casket full of doubloons, you’re not going to have much on the dinner table come winter.

    While I acknowledge and agree with you on the complexity here, i think your conclusion is exactly backwards. Villages like noblemen riding into town with sacks full of money willing to take their produce away for a good price. Villages do well from people like that. Its the noblemen who show up not with money but rules that cause all the difficulty. Ok, you’re looking for a new paradigm, but whatever it is, it is opposed to the idea of letting free people write agreements with one another on their own terms, which is what a market is. Without any of the controls you are thinking of, I am free to trade with a billion farmers at any price. That is complete security. How do you expect to improve on that?

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  102. Rex Widerstrom (5,354 comments) says:

    @ben:

    Given scarcity, higher prices are preferred to shortage and famine – although plainly the higher prices make life very difficult for many in developing countries. But I submit that is better than famine.

    For those in developing countries, higher prices mean famine. For NZ’s poor, higher prices mean they’re eating cat food while someone in Beijing or Bangalore eats NZ-grown steak. It’s happening now… stand in a supermarket on a weekday (when those sttill lucky enough to have a job are at the office) and listen to the beneficiaries and the superannuitants as they walk up and down the meat aisle.

    Soon it won’t even be worth supermarkets stocking higher-priced items like prime meat cuts. Goodness knows what they do with the stuff that reaches its use-by date unsold as it is.

    Is this a situation we’re prepared to tolerate in the name of unfettered profit for an (often foreign owned) conglomerate – NZ people unable to eat NZ’s food? It’s a perfectly valid stance to take. If that’s the model we intend to follow, then we need to be brave enough to say so, not pretend an open market will somehow “solve” it, because it hasn’t and it won’t, because it is in fact the cause.

    Provided food stays a global commodity, there is no relationship between food security and who produces what in this particular country.

    That assumes either a) food is sold at a level that is afforable by the poorest of the world’s citizen or b) we’re happy to let those of our fellow countrymen (because we have no control over what other governments do) who cannot afford to eat, go hungry. If neither of those prerequisites apply, then and only then do we need to think about how we retain a portion of what we produce for domestic consumption at afordable prices.

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  103. reid (16,509 comments) says:

    Reid, you seem to be arguing against the laws of supply and demand. This is not about ideology or ACT (where did you get that from, except your mate Winston), this is about the inevitable result of demand for a product growing faster than supply, and thereby pushing prices up. Nothing magic about this.

    Deity all I’m saying is it’s observable, beyond doubt, accepted reality that price distortion exists since the input prices don’t and cannot explain recent hikes over last several years. I don’t understand why you seem to imagine this ignores the laws of supply and demand for it says nothing about it.

    But since you mention it, the demand for dairy products hasn’t significantly changed either, in the last few years either. Which makes my point even more stark, by eliminating yet another alternative explanation which some of you seem almost desperate to come up.

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  104. Rex Widerstrom (5,354 comments) says:

    @ben:

    Without any of the controls you are thinking of, I am free to trade with a billion farmers at any price. That is complete security. How do you expect to improve on that?

    I can’t, if my only concern is that you as a farner gain the maximum price for every last grain of wheat you grow. But if I’m concerned that your neighbours are therefore going without bread, I need to start balancing your unfettered freedom against their right to exist. And yes, I realise that in itself is a contentious notion, bordering on socialism. Quite how we solve it without resorting to the equally tired and generally unworkable socialist paradigm I’m not, as I said, sure.

    I’m just sure I don’t like the idea of your neighbours going hungry not because they’re too lazy to work, but because their income from doing so can’t compete with that of a nobleman.

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  105. ben (2,380 comments) says:

    For those in developing countries, higher prices mean famine.

    No, they do not. Shortage vs higher prices is fundamentally different. There have been no widespread reports of famine form higher prices, only of rioting. People can still get the food they need, even if they aren’t happy about paying more.

    For NZ’s poor, higher prices mean they’re eating cat food while someone in Beijing or Bangalore eats NZ-grown steak.

    I doubt that. Cat food isn’t an especially cheap source of calories. Out of all the possible reasons that person was eating cat food, how can you know it is due to food prices? Even if you are right, the problem is scarcity, not prices per se.

    I agree meat is ludicrously expensive in New Zealand. I do not know why that is. It is much more expensive than in the US. Why? The obvious reason is scarcity, so where has that come from? Could be a monopoly problem, I guess, but I doubt it. I tend to think land costs, which are inflated by RMA, is part of it. Food safety compliance is almost certainly important as well. I’ll believe government is the problem before I believe it is the solution.

    Is this a situation we’re prepared to tolerate in the name of unfettered profit for an (often foreign owned) conglomerate – NZ people unable to eat NZ’s food? It’s a perfectly valid stance to take.

    No its not actually, not if your desire to see no or fewer profits taken interferes with people’s access to food, which is precisely what virtually any kind of binding regulation or control will produce. There’s no way around it. If you cap prices or set quotas then food will be in short supply one way or the other. You are entitled to dislike profits. You are not entitled to allow that to cause other people to go hungry.

    That assumes either a) food is sold at a level that is afforable by the poorest of the world’s citizen or b) we’re happy to let those of our fellow countrymen (because we have no control over what other governments do) who cannot afford to eat, go hungry. If neither of those prerequisites apply, then and only then do we need to think about how we retain a portion of what we produce for domestic consumption at afordable prices.

    Oh what rubbish. Plainly neither of the things you say there are correct. The basic point that China owning Crafer has no bearing at all on New Zealand’s access to global markets for food obviously isn’t addressed by either of your points.

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  106. side show bob (3,660 comments) says:

    You go Ben, you do Gods work.

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  107. ben (2,380 comments) says:

    Rex

    I can’t, if my only concern is that you as a farner gain the maximum price for every last grain of wheat you grow. But if I’m concerned that your neighbours are therefore going without bread, I need to start balancing your unfettered freedom against their right to exist. And yes, I realise that in itself is a contentious notion, bordering on socialism. Quite how we solve it without resorting to the equally tired and generally unworkable socialist paradigm I’m not, as I said, sure.

    I’m just sure I don’t like the idea of your neighbours going hungry not because they’re too lazy to work, but because their income from doing so can’t compete with that of a nobleman.

    No, that’s wrong again. The fact that there is a global market takes the local farmer out of the picture. Whether the consumer who wants to eat buys local or buys on the global market, he will pay about the same price. The farmer’s motivation to get the highest price is neither here nor there: he gets the same price whether he sells locally or overseas.

    Food prices were much higher 40 years ago than they are now, and incomes were much lower, and food takes up much smaller shares of incomes than it used to, so I doubt very much that the right to exist comes into it. But even if it does, forcing the local former to sell locally at a lower price than he can get overseas increases the likelihood the local consumer will starve for the reasons already stated.

    I’m just sure I don’t like the idea of your neighbours going hungry not because they’re too lazy to work, but because their income from doing so can’t compete with that of a nobleman.

    Again. Flat out wrong. There is not a fixed amount of food to buy here. The amount varies according to demand. More noblemen doesn’t mean more people go hungry, it means more food gets produced. Supply elasticity is an entirely uncontroversial proposition. In fact it is obvious.

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  108. KH (695 comments) says:

    Back to the milk.
    I think open markets are great things. And ideas such as price controls are stupid.
    But we do need regulation to ensure open markets. Maybe that sounds like a contradiction – but it isn’t.
    IN this case Fonterra maybe has a position to extract excess profits – because it has been able to control the market – rather than be subject to one l
    Don’t have the evidence for that. And with with different information, happy to change to have a different view.
    But if they have frustrated an open market, by controlling it, then regultion to ensure an open market is necessary.

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  109. kaya (1,360 comments) says:

    An experienced economist and a novice economist are walking down the road. They come across a pile of dog shit lying on the asphalt. The experienced economist says to the novice, “If you eat it I’ll give you $20,000!” The novice economist runs his optimization problem and figures out he’s better off eating the shit, so he does and collects the money.

    Continuing along the same road they almost step into yet another pile of dog shit. The novice economist says to his friend, “Now, if you eat this pile of shit I’ll give you $20,000.” After evaluating the proposal, the experienced economist eats the dog shit and takes the money.

    They continue on. The novice economist starts thinking and finally says to his friend, “Listen, we both have the same amount of money we had before, but we both ate shit. I don’t see us being better off.”

    The experienced economist answers, “Well, that’s true, but you overlooked the fact that we’ve just been involved in $40,000 of trade.”

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  110. ben (2,380 comments) says:

    Kaya: haha cute example, but there is a gain from trade here. The only way the experienced economist would offer $20,000 to the novice is if he got $20,000+x in enjoyment watching that. The only way the novice would accept the offer is if he got $20,000 – y > 0, in surplus, if y is the cost to him of eating shit. Rinse and repeat for the second episode. Although they both walk away with the same money, there is a gain from trade of 2(x – y) > 0. Each has received enjoyment in excess of eating shit, which is a prerequisite for trade to occur. Were that not true, nobody eats shit.

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  111. Rex Widerstrom (5,354 comments) says:

    @ben:

    Cat food isn’t an especially cheap source of calories. Out of all the possible reasons that person was eating cat food, how can you know it is due to food prices? Even if you are right, the problem is scarcity, not prices per se.

    Scarcity? There’s always plenty of meat on the supermarket shelves, it’s just that few can afford to pay for it. I’d be interested to see the breakdown of cost in a leg of lamb, because I recall farmers complaining, quite legitimately, about getting next to nothing for their carcasses back in the 80s when I was editor of “Straight Furrow”, yet us townies couldn’t afford to eat it.

    Could be a monopoly problem, I guess, but I doubt it.

    Well I don’t doubt it, the monopoly (or rather oligrachy) in question being the supermarkets. Who could only be controlled by… regulation!

    I tend to think land costs, which are inflated by RMA, is part of it. Food safety compliance is almost certainly important as well. I’ll believe government is the problem before I believe it is the solution.

    I agree that government is part of the problem, though the things you’ve cited impact mainly on the overheads of the poor farmer, not the multinational supermarket operator.

    If you cap prices or set quotas then food will be in short supply one way or the other.

    How so? If (for argument’s sake) a regulation were promulgated creating a domestic market for meat based on an allowance of x quantity per person per day (and with the farmer’s portion also set at a minimum so the supermarkets couldn’t, as they are doing in Australia over milk, use their oligrachy to ravage the farmers) then either the supermarkets would cut their profits and supply it at an affordbale price then we might see a few butchers return to our main streets. Or farmers would sell at the gate (again assuming we got rid of the forest of red tape you correctly point out exists).

    Provided we had our fill, the rest could be exported for whatever price the rest of the world is prepared to pay.

    Western Australia has done just such a deal with its LNG, setting a minimum level of 15% of output from each project to be available to the domestic market:

    The price of gas sold onto the domestic market will be determined through commercial negotiations between the gas producers and the consumers of that gas.

    But (and this is the important bit) if the domestic market doesn’t pay as much as the international one, tough – it’s our (WA’s) LNG and you still get maximum return on 85%.

    The rationale is exactly the same as the one I’m advancing:

    Should the majority of the State’s gas resources be committed to long term contracts for overseas buyers in the next few years, there are serious concerns that insufficient gas will be available for future domestic use.

    And last time I looked, WA wasn’t doing too badly, economy-wise.

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  112. reid (16,509 comments) says:

    there is a gain from trade here

    Crikey ben, if you think a ‘gain from trade’ is the satisfaction level gained from eating dogshit, please forgive me if I don’t put too much store in your arguments made here today.

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  113. ben (2,380 comments) says:

    Reid. Yes I suppose it’s easy for you to think your preferences ought to be everyone else’s. But they’re not, and the presumption has to be that if the economists in the example willingly made that trade then there is surplus coming out of it according to their preferences, if not yours (or mine).

    Nice example of argumentum ad hominem in your last post, by the way.

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  114. ben (2,380 comments) says:

    Rex

    How so? If (for argument’s sake) a regulation were promulgated creating a domestic market for meat based on an allowance of x quantity per person per day (and with the farmer’s portion also set at a minimum so the supermarkets couldn’t, as they are doing in Australia over milk, use their oligrachy to ravage the farmers) then either the supermarkets would cut their profits and supply it at an affordbale price then we might see a few butchers return to our main streets. Or farmers would sell at the gate (again assuming we got rid of the forest of red tape you correctly point out exists).

    I am reluctant to get further into this, because you’re mixing in lots of unrelated ideas.

    Yes, your idea of a minimum quota to be sold locally could actually reduce domestic prices without producing a shortage. This would effectively be an export tax, and so it would be a drain on the economy and produce undersupply, etc, but these costs would not be manifested in the form of food shortages, but rather in misallocation of land and labour. Ok, nobody starves, but the economy is still poorer.

    Why is it desirable to see butchers on the main streets? I’d rather see meat distributed by whichever ways consumers find most convenient and economic. If that’s via main street butchers, fine. If not, fine. It isn’t clear how you know which way is best. Same for farmers – yep, I believe 100% farmers should be free to sell at the farm gate. Let distributors and supermarkets feel some competitive pressure that way. It’s easy to imagine this being a source of some real innovation if there is fat in the current distribution and supermarket systems.

    That price caps produce shortage is uncontroversial.

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  115. CharlieBrown (1,014 comments) says:

    Reid – “No, that’s not what I expect farmers to do CharlieBrown”

    So in the post where you say:

    “We consumers in NZ are positioned exactly as consumers in oil exporting countries like Brunei and the ME, are. Those consumers get really cheap oil and no doubt the govt run oil coys over there, have political reasons as well, for keeping it down however fact is, it should be cheap cause they only have to distribute locally. So why is it different for us, here, with dairy?
    Why do some people seem to think that the “market” doesn’t need guidance and direction in order to avoid pricing distortions which arise when monopilistic situations happen with monopolies, duopolies and cartels and to prevent it from running with itself as happened recently with the lamentably under-regulated financial markets when CDOs hit the market.”

    You are pushing for regulations under the basis that they should be selling here cheaper as they live close to the market? So you’ll be selling your neighbours your services cheap then? Or are those farmers who work 80 hours a week for weeks at a time without a day of rich pricks that should be giving back to the community.

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  116. reid (16,509 comments) says:

    You are pushing for regulations under the basis that they should be selling here cheaper as they live close to the market?

    No I’m not pushing for regulations CharlieBrown. Never have been. Duh. That’s not what I said in my first post on this thread. Fucking d’oh, CharlieBrown.

    For various detailed reasons as previously explained above (fucking duh, CharlieBrown) I have suggested sunlight, not regulation. So no, I’m not “pushing for regulations.”

    Not in favour of those, at all, and if you’d read my posts, you’d know exactly why I’m not in favour of those, as well, CharlieBrown.

    Fucking d’oh.

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  117. ben (2,380 comments) says:

    Reid:

    No I’m not pushing for regulations CharlieBrown. Never have been. Duh. That’s not what I said in my first post on this thread. Fucking d’oh, CharlieBrown.

    But here’s what you said at 5:36pm:

    If there isn’t any “appropriate regulatory authority” either in Treasury, MED or the Commerce Commission then apparently, according to actual reality, one needs to be setup, right now. Is anything about the above unreasonable?

    Explain how a call for “appropriate regulatory authority” is not a call for regulation. Sans invective, if you can manage it.

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  118. wolfjung (59 comments) says:

    I disagree with Mr. Ferrier and DPF on this one. Milk is only a commodity traded product once it has been converted into powder or cheese product. They don’t sell overseas fresh milk that one buys here in NZ. The government agreed to allowing the formation of Fonterra from Anchor and Kiwi co-op, which established the monopoly (one could hardly call Tatua, Westland, and Meadowlea as equal competition and in many cases Fonterra supply the milk to these competitors through their co-op)

    There is a social responsibility for the government to stop Fonterra converting every litre of milk they process into more valuable commodity products. Milk is a staple part of the diet and every NZ’er should have a right to fresh milk at a reasonable price. What is sold in NZ should not be linked to the world-wide commodity price. Why don’t they start paying all their workers a wage linked to the markets they sell into also?

    Maybe in 10-15 years time there will be an oversupply of milk in NZ, as most commodity products will be made in Chile or Uruguay where Fonterra and NZ dairy farmers are investing heavily. The cost to process milk in these countries is far cheaper. I’m glad Fonterra learnt their lesson in China and god forbide that Nz’ers end up drinking milk processed from that country simply because it’s cheaper.

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  119. slijmbal (1,236 comments) says:

    Some impressively bad understanding of markets and incentives expressed here.

    Let’s try and simplify it down

    – regulated pricing markets has unintended consequences – we have seen this for years – caps affect supply, subsidies transfer wealth to the suppliers etc There is so much evidence for this.

    – regulation on price or behaviour is required where there are monopoly type markets but there is little evidence that there is a monopoly type exercise of market control here by Fonterra. Dairy is internationally priced and despite the musings of many, supermarkets don’t have glorious profitability. They do have some products where their margin is impressive (used to be 5-8 years ago when I worked in that industry) but interestingly these were mostly the unhealthy goods eg booze, fags, etc NZ does have a bunch of monopolistic players who use their position to maximise profits but dairy does not appear to be one of them

    – clarity on margins would be good and would have an effect if players are rorting the margins – but while we are at it – why not fish? Healthy, and we export too much. Decent bread looks damn expensive to me but not a peep about that. There are a load of other products that the same could be said about but one cannot help but feel this push is based on the usual kiwi envy of someone making money that permeates much of our society.

    – @ wolf – milk IS a commodity product full stop – it can be sold either as milk, cheese, milk products etc It makes no difference in price to the farmer about the end use – he gets paid based on milk solids and some quality measures. They would make roughly the same amount of money if no real milk was sold in NZ.

    – comparisons with oil are not apples with apples. A huge amount of the cost of oil is tax – thus our cheaper petrol than UK and more expensive than US last time I looked.

    – Agriculture is one of the most protected, tariffed, subsidised, trade barrierised (sorry about that word) industries around and Fonterra succeeds despite all that. There is an argument that this raises dairy product prices interrnationally and, if so, the blame squarely lies with the way more regulated markets behave

    – We seem to forget that dairy has good and bad years, many farmers go in to significant debt for instance, farmers I have contact with work like dogs but the sub-text here is that they are ripping us off

    This is just standard socialist claptrap disguised as caring for others.

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  120. wreck1080 (3,923 comments) says:

    i’m off to woolies to buy 2000 cans of infant formula to sell to my chinese friends , woohoo.

    Which , is why milk is expensive. The Chinese have overnight sprung a middle class who want to consume the same products as you and me.

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  121. wolfjung (59 comments) says:

    @slijmbal, you have given this debate a much needed injection……….
    I agree with you that on the current structure milk is best seen as a commodity. No one has said anything about the farmers ripping anyone off (except most are shareholders of Fonterra), they are simply a supplier in the supply chain who is paid as you said based on fat/protein content of their product according to their negotiated contract with the Co-op.

    The problem I see is the one which rests with Fonterra who makes the decision what the milk is converted to, but since everyone is so free-trade orientated let them convert everything to milk powder, lactose for ethanol or whatever else and let the traders sort out what price we will pay for milk in NZ. Who cares where it comes from and whether one has to pre-mix it with water.

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  122. kaya (1,360 comments) says:

    The First Law of Economists: For every economist, there exists an equal and opposite economist.

    The Second Law of Economists: They’re both wrong.

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  123. CharlieBrown (1,014 comments) says:

    Fucking d’oh, Reid… you seem to have a short memory or just cant read what you write.

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  124. Jeff83 (745 comments) says:

    A load of baloony. Fonterra is just freaking out about how much they are ripping NZ off.

    Milk is cheaper in London than it is in Auckland. Makes no f***ing sense.

    NZ does well overall by having a monopoly, but the individual consumers suffer.

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  125. dandy (12 comments) says:

    How about it:

    Families get an increase in GST, reduced NZ dollar, and increased price of milk- all effectively penalising families with young children whom require milk products for sustainance- what does this say for how this current government values young families? Presumably it’s that they’re worth less than the principles of free-trade and blanket GST?

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