ComCom says no milk price control inquiry
However, notes lack of competition at "factory gate" supply of milk.
The Commerce Commission has ruled out a price control inquiry into the domestic milk market.
A price control inquiry is undertaken to determine whether the commission should recommend to the government that price control should be imposed.
Dr Mark Berry, chairman of the Commerce Commission, says the threshold for undertaking an inquiry under part four of the Commerce Act is high.
“We can only recommend control if “little or no competition” exists or is “likely to substantially increase” in a market, and that there is no other effective constraint on the exercise of market power.
“Part 4 regulation is only imposed on firms with a high degree of market power, usually because of the natural monopoly characteristics of the industry in question, such as
electricity or gas distribution.”
The commission reviewed four markets: farm gate supply, factory gate supply, wholesale supply and retail supply.
It concluded there “appears to be little or no competition in the market for the factory gate supply of raw milk, and little or no likelihood of a substantial increase in competition in this market.”
However, “factory gate supply is already regulated under the Dairy Industry Restructuring Act and the Raw Milk Regulations and these are designed to constrain Fonterra’s market power.”
The commission found more competition in both the wholesale and retail markets.
“At the retail level there is competition between the two major supermarket chains, dairies, service stations and other retailers,” Dr Berry says.
“At the wholesale level, it is the competition between Fonterra Brands and Goodman Fielder that exceeds the little or no competition threshold.
“Overall our analysis shows that the level of competition, taking into account existing regulation arrangements means that intervention under Part 4 of the Commerce Act is not possible.”
Niko Kloeten
Tue, 02 Aug 2011
Tue, 02 Aug 2011
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
ComCom says no milk price control inquiry
16149