Who makes what?

Finding out exactly who's making what out of a litre of milk is hugely complicated by the concentrated nature of our domestic market.

Fonterra collects the majority of milk produced in New Zealand. That was the case 10 years ago when the mega-company was created and it remains the case today. Regulations are in place to "promote" competition but Fonterra remains top dog.

The company's nearest "rival" is Goodman Fielder, which markets the Meadowfresh and Naturalea brands. Goodman Fielder doesn't collect milk directly from farmers. It buys what it needs from Fonterra under the Dairy Industry Restructuring Act. The Act requires Fonterra to supply a set amount of milk to other processors to foster local competition.

But we don't think the Act is delivering. The Commerce Commission has determined that Fonterra’s breached the rules on three occasions by refusing to supply milk to other processors when requested. Fonterra has successfully appealed aspects of two of these cases and sought leave to appeal other aspects to the Supreme Court.

For its part, Fonterra argues that many processors buying its milk aren't selling it domestically. They're turning it into products for export. The company says this is contrary to the intent of the Act and it's lobbying for changes to stop competitors "gaming" the system.

Commerce Commission investigation

The Commerce Commission has announced it's undertaking a "preliminary analysis" to see whether an inquiry into the price of milk is warranted. It says it's received a number of complaints, including one from us, leading it to take a closer look at the milk market.

The commission's decision is welcome. But the extent of any investigation may be hamstrung by the Commerce Act. The Act allows a price inquiry to take place only in narrowly specific circumstances – as a result, they're extremely rare. The commission also has no powers to impose controls as a result of any inquiry.

Failing action by the commission, it's clear consumers deserve to know a lot more about how retail dairy prices are set. We've written to the Commerce Select Committee requesting an inquiry into milk pricing and competition in the domestic dairy market.