Kedgley Sue: Questions for Oral Answer — Questions to Ministers 
Kedgley Sue: Questions for Oral Answer — Questions to Ministers 
[Volume:670;Page:17390] 
10. 
SUE KEDGLEY (Green) 
 to the  
Minister of Commerce 
: Will he use his powers under Part 4 of the Commerce Act 1986 to call for an investigation into the dairy wholesale and retail milk market following the release of the Ministry of Agriculture and Forestry’s review of the domestic milk market in New Zealand; if not why not? 
Hon BILL ENGLISH (Deputy Prime Minister) 
 on behalf of the  
Minister of Commerce 
: The Commerce Commission can of course on its own initiative undertake an inquiry under Part 4 or an enforcement investigation if it has concerns. In respect of the Minister’s powers to initiate an inquiry that capacity under Part 4 of the Commerce Act is related to concerns about monopolies. There would need to be a pretty tough test applied to make an inquiry justified. 
Sue Kedgley 
: Does he agree that competition in New Zealand’s dairy wholesale market is limited by the fact that there are just two major players Fonterra and Goodman Fielder and that Goodman Fielder is required to purchase all its milk from its competitor Fonterra? 
Hon BILL ENGLISH 
: The member will be aware of the history of the structure of our domestic milk market. Going back to the formation of Fonterra in the early 2000s there was agreement at the time to limit Fonterra’s capacity to be a domestic monopoly. Fonterra was required to sell some assets at the time and for most of the last 10 years I think we have all been generally happy that there has been a sufficiently competitive domestic milk market. But clearly Fonterra has an interest in ensuring that the domestic milk market does not undermine its export strength. 
Sue Kedgley 
: Does he agree that a company that controls around 95 percent of the market for dairy products has a virtual monopoly on the market and therefore has no incentive to minimise prices; if not why not? 
Hon BILL ENGLISH 
: I am not sure whether it controls 95 percent of the domestic market. It certainly controls a very significant proportion of the export market. There have been ongoing discussions in the context of dairy regulation between the Government and Fonterra about issues such as the transparency of milk pricing. I think we are all aware that New Zealand consumers must be protected from the potential for dominance of the market by Fonterra and I believe up until now that both the previous Government and the current Government have acted to protect consumers. 
Sue Kedgley 
: Does he agree that the fact that we have a virtual milk monopoly selling to a supermarket duopoly may be contributing to the high price of milk and requires further investigation; if not why not? 
Hon BILL ENGLISH 
: The arrangements around Fonterra certainly need to be kept under scrutiny continuously because there is always the potential that such a large company could influence the domestic market. However there is not a lot of evidence that they have been behaving in a monopolistic manner. The market seems to have worked reasonably well over the last 10 years but I think it is natural that when prices rise consumers are asking the question and we need to be able to demonstrate to them that they are protected. 
Sue Kedgley 
: Does he agree that in a concentrated market dominated by a very small number of big players there needs to be scrutiny of how retail prices are set so that consumers can be confident that the prices they are paying are fair? 
Hon BILL ENGLISH 
: Yes. 
Rahui Katene 
: Is he aware of the advice from the company Miraka Ltd the majority of which is Maori-owned that it saw the Ministry of Agriculture and Forestry and the Commerce Commission as playing a kaitiaki role in terms of ensuring fairness within the system and what assurance can he give the House that fairness for consumers will be prioritised to protect New Zealanders from suffering further price increases on dairy products such as milk cheese and butter which have already increased in price by 19.7 percent on average over the past 3 years? 
Hon BILL ENGLISH 
: Miraka as do others would expect the Commerce Commission and the Ministry of Agriculture and Forestry to be guardians of the consumer interest and in this circumstance the Commerce Commission has the power to initiate an inquiry if it thinks there are grounds for doing so. I would say that an increase in prices of itself is not evidence of monopolistic behaviour. In this case it is plausible at least to believe that the sharp increase in export prices for dairy products is the main reason for the increase in the domestic milk price. If there is significant evidence that the price is being manipulated then the Commerce Commission has the ability to inquire into that. 
Sue Kedgley 
: Given growing consumer concern about the high price of milk does he agree that an investigation is needed to see whether there is any evidence that high milk prices are a result of either insufficient competition in the sector or a dominant player abusing its market position and passing excessive margins and costs on to New Zealand consumers? 
Hon BILL ENGLISH 
: As I have said the Commerce Commission has the power to initiate an inquiry if it thinks there are grounds for it. A Minister can potentially initiate an inquiry. In both cases an increase in prices is not evidence in itself of market manipulation. But if there was significant evidence then either the Minister or the Commerce Commission I am sure would consider it. 
Sue Kedgley 
: Has he seen claims by farmers that they receive less than 30 percent of the price of the milk; and does he not think therefore that there ought to be a Commerce Commission investigation into what makes up the remaining 70 percent of the retail price? 
Hon BILL ENGLISH 
: It is a time-honoured tradition among farmers to complain about the small proportion of the total price that they receive and it has been going on for as long as I can remember. I do not expect that it will ever change regardless of the market prices. But again I do not think that that in itself is evidence that the market is being manipulated but we agree that we need to be very vigilant when there is such a major company with a large market share. If there is evidence that a company is manipulating the prices against the interest of consumers then the Commerce Commission has the capacity to look into that.