Description
Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-operative owned by 10,600 New Zealand farmers.
FONTERRA
Social Sustainability
AGENDA
? Fonterra
and the price of milk on Fonterra
? Introduction ? Historic ? Paths ? Best
and current prices of milk
to reach the social optimum
way to reach the mark
?
Should Fonterra be the focus?
FONTERRA
?
Creation Fonterra Co-operative Group Ltd. World’s largest processor and exporter 14 billion litres of milk 5% is retained for NZ consumption
?
?
?
?
Export to more than 140 countries
FONTERRA
?
Environmental sustainability programmes Fonterra is socially sustainable Problem lies with supermarkets Universally recommended in dietary guidelines
?
?
?
HISTORIC MILK
PRICES
MILK PRICES – THEN & NOW
Weighted average retail prices of selected food items as at February 2011 Item Unit March quarter Past price In today's In today's dollars dollars and units (2Ltrs) 5d 0.75 2.63 $0.04 $0.10 $0.99 $2.83 $3.29 0.58 0.52 1.71 3.84 3.29 2.04 1.75 3.43 3.84 3.29
Milk
Pint
1959 1969
600ml 1L 2L
1979 1989 1999 2009
2011
$4.80
4.80
4.80
Source: Statistics New Zealand
WHY IS MILK EXPENSIVE?
Source: Campbell Live
HOW TO ACHIEVE THE SOCIAL
OPTIMUM
?
Interference by the Government?
?
Subsidy?
Reasons for a subsidy?
?
EFFECT OF A SUBSIDY
Subsidy
Source: docs.google.com
REMOVAL OF GST
?
GST in New Zealand
?
No equivalent in Australia and the UK
?
Good recommendation?
WHAT SHOULD BE DONE?
?
Don’t recommend:
? ?
Subsidy Removal of GST
?
Should Govt interfere in the market? Is Fonterra the problem?
? ? ?
?
Fonterra: 12% profit Supermarkets: over 100% Regulate supermarkets
FONTERRA’S PART
?
Fonterra/supermarkets against regulation:
? ?
Agreement between themselves Fonterra could offer:
?
Full return policies Improved refrigeration
?
?
Decrease retail price
?
Can spread costs into other areas – luxury items
FONTERRA SHOPS
?
Milk shops
? ? ?
Lower price Create jobs All dairy products
CONCLUSION
? ? ?
Looked at Fonterra and milk prices Historically more expensive Current price perceived as high
?
Govt interference in Fonterra will likely have to many
costs
REFERENCES
? ? ? ?
?
?
?
One News. (2011, February 18). Fonterra freezes local milk prices for 2011. The New Zealand Herald. Retrieved fromhttp://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10707233 Indirect Taxes, Subsidies and Elasticity. (Lecture slides). Retrieved from https://docs.google.com/viewer?url=http://khswalker.wikispaces.com/file/view/Indir ect+Taxes,+Subsidies+and+Elasticity.pdf&embedded=true&chrome=true Business Dictionary.com (2011). Value added tax. Retrieved from http://www.businessdictionary.com/definition/value-added-tax-VAT.html Directgov. (16 May 2011). VAT basics for consumers. Retrieved from http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/VA T/DG_190918 Directgov. (16 May 2011). Free milk, fruit, vegetables, infant formula, and vitamins. Retrieved from http://www.direct.gov.uk/en/Parents/HavingABaby/AfterTheBirth/DG_4002854 Hall, J. (2011, May 16). Shoppers could face VAT on food. The Telegraph. Retrieved from http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/7386834/Shopperscould-face-VAT-on-food.html Australian Taxation Office (nd). GST and food – schedules 1 and 2: What food is GST free? Retrieved from http://www.ato.gov.au/businesses/content.aspx?doc=/content/13287.htm
THANK YOU
Questions?
APPENDICES
SUMMARY OF EVENTS WHICH HAVE OCCURRED IN THE NEW ZEALAND ECONOMY AND THEIR CONSEQUENCES FOR MILK PURCHASING.
Year 1943 Event Milk Commissioner appointed to identify measures required to ensure adequate supply of milk to New Zealand households at reasonable prices Consequence Price controls (under the Milk Prices Authority) allowed retail prices to remain stable and milk was delivered directly to every household improving accessibility Creation of the New Zealand Milk Board Increase in retail cost of milk Removal of import tariffs and encouragement of investment by multinational companies in particular resulted in increased supply and availability of carbonated beverage Decreasing price of carbonated beverages Increase in retail cost of milk Deregulation of dairy industry (except home delivery) including removal of price and margin controls and the institution of zoning and milk distribution systems. Reduction of the New Zealand Milk Board's promotional material and Programmes Increase in retail cost of milk
1976 1984
Milk price-fixing lifted Commencement of general economic reforms in New Zealand
1985
Abolition of consumer price subsidies for milk Increase in retail cost of milk Industries Development Commission review of milk production and supply to the local market. Milk Act (1988) enacted Introduction of Goods and Services Tax Supermarkets authorized to operate as milk vendors Goods and Services tax increase to 12.5%
1986 1987 1989
Increase in retail cost of milk
Year 1990–92 1993
Event
Consequence Milk now more expensive (per litre) than carbonated beverages * Full deregulation of the domestic milk industry * New Zealand Milk Board disestablished * Large conglomerate processing companies responsible for production, pricing, promotion and distribution of domestic supply * Milk supply for domestic distribution integrated with the industry's export arm * Domestic supply operating under free-market conditions introducing competition within market place * Prices linked to international commodity prices, rising and falling with global market prices * Gradual loss of daily delivery to New Zealand households Decisions in industry made in terms of capital return for shareholders Record prices for milk producers in New Zealand resulting in benefit for farmers, producers and improved balance of trade but high retail prices for consumers in the domestic market
Expiry of the Milk Act (1988)
2001
2006-07
Dairy Industries Restructuring Act (2001) permits the creation of Fonterra Co-operative Group Ltd. Increased global demand for dairy produce
INCREASES IN MILK PRICES – A SOCIAL ISSUE
?
Economic Reforms of the mid 1980’s.
?
? ? ?
Removal of government subsidies, Reduction of import tariffs Removal of controls on interest rates, wages and prices Introduction of GST in October 1985 – 10% and increasing to 12.5% in
Increase in population ? Recent increase in global demand for dairy products, resulting in increase in price of dairy products.
?
doc_655446200.pptx
Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-operative owned by 10,600 New Zealand farmers.
FONTERRA
Social Sustainability
AGENDA
? Fonterra
and the price of milk on Fonterra
? Introduction ? Historic ? Paths ? Best
and current prices of milk
to reach the social optimum
way to reach the mark
?
Should Fonterra be the focus?
FONTERRA
?
Creation Fonterra Co-operative Group Ltd. World’s largest processor and exporter 14 billion litres of milk 5% is retained for NZ consumption
?
?
?
?
Export to more than 140 countries
FONTERRA
?
Environmental sustainability programmes Fonterra is socially sustainable Problem lies with supermarkets Universally recommended in dietary guidelines
?
?
?
HISTORIC MILK
PRICES
MILK PRICES – THEN & NOW
Weighted average retail prices of selected food items as at February 2011 Item Unit March quarter Past price In today's In today's dollars dollars and units (2Ltrs) 5d 0.75 2.63 $0.04 $0.10 $0.99 $2.83 $3.29 0.58 0.52 1.71 3.84 3.29 2.04 1.75 3.43 3.84 3.29
Milk
Pint
1959 1969
600ml 1L 2L
1979 1989 1999 2009
2011
$4.80
4.80
4.80
Source: Statistics New Zealand
WHY IS MILK EXPENSIVE?
Source: Campbell Live
HOW TO ACHIEVE THE SOCIAL
OPTIMUM
?
Interference by the Government?
?
Subsidy?
Reasons for a subsidy?
?
EFFECT OF A SUBSIDY
Subsidy
Source: docs.google.com
REMOVAL OF GST
?
GST in New Zealand
?
No equivalent in Australia and the UK
?
Good recommendation?
WHAT SHOULD BE DONE?
?
Don’t recommend:
? ?
Subsidy Removal of GST
?
Should Govt interfere in the market? Is Fonterra the problem?
? ? ?
?
Fonterra: 12% profit Supermarkets: over 100% Regulate supermarkets
FONTERRA’S PART
?
Fonterra/supermarkets against regulation:
? ?
Agreement between themselves Fonterra could offer:
?
Full return policies Improved refrigeration
?
?
Decrease retail price
?
Can spread costs into other areas – luxury items
FONTERRA SHOPS
?
Milk shops
? ? ?
Lower price Create jobs All dairy products
CONCLUSION
? ? ?
Looked at Fonterra and milk prices Historically more expensive Current price perceived as high
?
Govt interference in Fonterra will likely have to many
costs
REFERENCES
? ? ? ?
?
?
?
One News. (2011, February 18). Fonterra freezes local milk prices for 2011. The New Zealand Herald. Retrieved fromhttp://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10707233 Indirect Taxes, Subsidies and Elasticity. (Lecture slides). Retrieved from https://docs.google.com/viewer?url=http://khswalker.wikispaces.com/file/view/Indir ect+Taxes,+Subsidies+and+Elasticity.pdf&embedded=true&chrome=true Business Dictionary.com (2011). Value added tax. Retrieved from http://www.businessdictionary.com/definition/value-added-tax-VAT.html Directgov. (16 May 2011). VAT basics for consumers. Retrieved from http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/VA T/DG_190918 Directgov. (16 May 2011). Free milk, fruit, vegetables, infant formula, and vitamins. Retrieved from http://www.direct.gov.uk/en/Parents/HavingABaby/AfterTheBirth/DG_4002854 Hall, J. (2011, May 16). Shoppers could face VAT on food. The Telegraph. Retrieved from http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/7386834/Shopperscould-face-VAT-on-food.html Australian Taxation Office (nd). GST and food – schedules 1 and 2: What food is GST free? Retrieved from http://www.ato.gov.au/businesses/content.aspx?doc=/content/13287.htm
THANK YOU
Questions?
APPENDICES
SUMMARY OF EVENTS WHICH HAVE OCCURRED IN THE NEW ZEALAND ECONOMY AND THEIR CONSEQUENCES FOR MILK PURCHASING.
Year 1943 Event Milk Commissioner appointed to identify measures required to ensure adequate supply of milk to New Zealand households at reasonable prices Consequence Price controls (under the Milk Prices Authority) allowed retail prices to remain stable and milk was delivered directly to every household improving accessibility Creation of the New Zealand Milk Board Increase in retail cost of milk Removal of import tariffs and encouragement of investment by multinational companies in particular resulted in increased supply and availability of carbonated beverage Decreasing price of carbonated beverages Increase in retail cost of milk Deregulation of dairy industry (except home delivery) including removal of price and margin controls and the institution of zoning and milk distribution systems. Reduction of the New Zealand Milk Board's promotional material and Programmes Increase in retail cost of milk
1976 1984
Milk price-fixing lifted Commencement of general economic reforms in New Zealand
1985
Abolition of consumer price subsidies for milk Increase in retail cost of milk Industries Development Commission review of milk production and supply to the local market. Milk Act (1988) enacted Introduction of Goods and Services Tax Supermarkets authorized to operate as milk vendors Goods and Services tax increase to 12.5%
1986 1987 1989
Increase in retail cost of milk
Year 1990–92 1993
Event
Consequence Milk now more expensive (per litre) than carbonated beverages * Full deregulation of the domestic milk industry * New Zealand Milk Board disestablished * Large conglomerate processing companies responsible for production, pricing, promotion and distribution of domestic supply * Milk supply for domestic distribution integrated with the industry's export arm * Domestic supply operating under free-market conditions introducing competition within market place * Prices linked to international commodity prices, rising and falling with global market prices * Gradual loss of daily delivery to New Zealand households Decisions in industry made in terms of capital return for shareholders Record prices for milk producers in New Zealand resulting in benefit for farmers, producers and improved balance of trade but high retail prices for consumers in the domestic market
Expiry of the Milk Act (1988)
2001
2006-07
Dairy Industries Restructuring Act (2001) permits the creation of Fonterra Co-operative Group Ltd. Increased global demand for dairy produce
INCREASES IN MILK PRICES – A SOCIAL ISSUE
?
Economic Reforms of the mid 1980’s.
?
? ? ?
Removal of government subsidies, Reduction of import tariffs Removal of controls on interest rates, wages and prices Introduction of GST in October 1985 – 10% and increasing to 12.5% in
Increase in population ? Recent increase in global demand for dairy products, resulting in increase in price of dairy products.
?
doc_655446200.pptx