Milk Price Methodology and Industry Regulation  

Notes:

¹ This price may differ from the “farm gate milk price” published in accordance with the Dairy Industry Restructuring (Raw Milk) Regulations 2012 due to the way “farm gate milk price” is defined in those Regulations and the impact of Fonterra’s fixed milk price offers.

² Most of the milk supplied over the past decade in New Zealand to Fonterra and its competitors used to manufacture commodity dairy products has been used to manufacture milk powders. As returns from the sale of milk powders and their by-products represent the marginal returns that would drive the price of milk in a competitive market in New Zealand, the Farmgate Milk Price is based onm these products.

³ Additional Commodity Milk Payments are payments for milk supplied other than on standard terms of supply where it would be appropriate for the NMPB to source that milk for conversion into RCPs. Examples of these payments include the portion of Winter Milk premiums that would be payable by the NMPB and discounts for contract milk. Standard Supply Adjustments arise from adjustments to payments for milk supplied under Fonterra’s standard terms of supply, such as where milk quality demerits have been applied.

Both Fonterra’s Constitution and DIRA require Fonterra to maintain a Milk Price Manual, which sets out Fonterra’s policies and methodology for determining the Farmgate Milk Price. The Manual must reflect the Milk Price Principles set out in Fonterra’s Constitution. The Farmgate Milk Price has been calculated in accordance with the Manual since the start of the 2009 season. 

The Fonterra Board sets the total amount to be paid by Fonterra for all milk supplied to it in New Zealand in each season, overseen by a robust governance structure. A detailed description of the Farmgate Milk Price governance structure can be found in Fonterra’s annual Milk Price Statement below.

• Farmgate Milk Price manual 2024/25
• Farmgate Milk Price manual 2023/24
• Farmgate Milk Price manual 2022/23
• Farmgate Milk Price manual 2021/22
• Farmgate Milk Price manual 2020/21
• Farmgate Milk Price manual 2019/20
• Farmgate Milk Price manual 2018/19
• Farmgate Milk Price manual 2017/18
• Farmgate Milk Price manual 2016/17
• Farmgate Milk Price manual 2015/16
• Farmgate Milk Price manual 2014/15
• Farmgate Milk Price manual 2013/14

• Milk Price Panel Terms of Reference 2024
• Compass Lexecon Milk Pricing review, 20 July 2011

As required under the DIRA, the Commerce Commission carries out a review of both the Milk Price Manual and the Farmgate Milk Price calculation annually. For more information about the review process and for copies of the Commerce Commission’s reports go to the Commerce Commission’s website. Read more here.

Review of the Farmgate Milk Price

Under Section 150O of the Dairy Industry Restructuring Act 2001 (as amended in July 2012), the Commission must review Fonterra's calculation of the “base milk price” for each season and report on the extent to which it is consistent with the purpose set out in section 150A of the Act. To assist the Commission's review, Fonterra must provide (by 1 July in each year) the assumptions adopted and the inputs and processes used in calculating the base milk price for the preceding season, together with certification (including reasons) that these are consistent with the purpose set out in section 150A of the Act. The Commission is required to make its final report by 15 September each year.

Under Section 150H of the Act, the Commission is required to review Fonterra’s Milk Price Manual for each season and report on the extent to which it is consistent with the purpose set out in section 150A of the Act. To assist this review, Fonterra must provide the Milk Price Manual for the current season, recommendations of the Milk Price Panel in relation to the setting of the base milk price, notification of required changes, certification of why it meets the purpose, and supporting reasons before 1 August each year. The Commission is required to make its final report by 15 December each year.

Under sections 150JA and 150QA of the Act, Fonterra is required to make all “non-sensitive” information requested by or provided to the Commerce Commission in relation to its reviews of Fonterra’s Milk Price Manual and base milk price calculation publicly accessible.

Fonterra makes no warranty, express or implied, nor assumes any legal liability or responsibility to any person for the accuracy, correctness or completeness of the information disclosed in accordance with the Act.

Review of Fonterra’s Milk Price Manual

Under section 150H of DIRA the Commission is required to review Fonterra’s Milk Price Manual for each season and publish a report on the extent to which it is consistent with the purpose set out in section 150A of the Act. To assist the Commission’s review Fonterra needs to provide the Milk Price manual for the current season, together with recommendations of Fonterra’s Milk Price Panel in relation to the setting of the “base milk price” (i.e. the Farmgate Milk Price calculated under the Manual), notification of required changes in the business environment that requires a change to the Manual, certification of why it meets the DIRA 150A purpose, and supporting reasons for the certification before 1 August each year. The Commission is required to issue its final report by 15 December each year.