Hello again,
Just a quick update on the Fonterra story: it's doing it's rounds in the industry and more and more people are becoming aware of the issue. Latest publication is in the "Dairy Bible", Barry Wilson's Dairy Industry Newsletter!
Keep spreading the word...
Friday, August 31, 2012
Monday, August 13, 2012
Is Fonterra rigging the international dairy market prices: a David and Goliath story
Today I am bringing you something a bit more "biblical" in terms of international trade: a sort of David vs. Goliath.
Meet Goliath: Fonterra is New Zealand's largest dairy cooperative and is known to control directly (but mostly indirectly) more than half of the international dairy trade. It is the powerhouse in the industry, it has always tried to influence the trade in order to increase demand during New Zealand dairy season and stifle demand during the off season. However, these actions have reached their highest level of sophistication recently, through the creation of a “transparent” tender platform called www.globaldairytrade.com in order to try to build an image of fairness in business. For the untrained eye, this looks totally "Kosher". In fact, it is a clever way to manipulate the market.
Meet David: a dairy consultant who had the guts to write an open letter to EU Trade Commissioner Karel de Gucht today. The letter's content has been published on moproweb.de this morning and I have attempted to translate the main part that shows several strategies Fonterra is using to achieve their monopolistic goal. Here are the points that our "David" submits to the EU Commission.
1) globalDairyTrade does not deal with butter and Milk Protein Concentrate 85%.
The reasons are:
1.1) Fonterra has a special distribution channel agreement in several markets for its butter and does not want to disturb this business by indicating lower prices on its tender platform.
1.2) Milk Protein Concentrate 85% protein (MPC 85) is one of the few dairy products that Fonterra can export to Europe with only 3.4% import duties (and to several other important markets in the world). This allows Fonterra to influence the price in these markets indirectly (the full explanation is not given in the article but basically by combining the MPC 85 with lactose or milk permeate you can decrease the protein level of MPC85 and use it instead of Skimmed Milk, which will obviously have an influence on the prices of Skimmed Milk, a major part of the international dairy trade).
2) globalDairyTrade does not show the volume of traded products by category, but rather only an aggregate volume awarded.
The reason for this is that Fonterra wants to decrease the price of WMP (whole milk powder) during the European milk season so buyers get their product from New Zealand. The way it works is that they offer bigger volumes of WMP on the tender, so high supply, lower demand, bid prices will be low. When the season comes up in New Zealand, they offer smaller volumes of WMP during the tender session, triggering the inverse mechanism during the period that Europe has less milk (which means that Fonterra is maximizing it profits all year long while the opposite is happening for Europe). Moreover, Fonterra knows very well that some big buyers (the "Big Boys") need to buy New Zealand origin as it is written on their retail packaging, writes the consultant (which means that the volumes offered being small, those who need to buy, will have to offer exorbitant prices).
3) Applications to become a member on globalDairyTrade are routinely rejected based on "bogus" (pardon my colloquialism) reasons.
When they register to the platform, the aspiring participants need to indicate the destinations to where they will export the products purchased. If the destination could "disturb" one of Fonterra’s Big Boys, Fonterra will reject the application under the pretence that it does not accept brokers however, even if you are a distributor, the reason provided will be the same. Funny enough though, Europe's three largest brokers are active members of the platform, since Fonterra wouldn't want them to complain to the EU commission.
4) Fonterra sells to its Big Boys outside the tender, of course, at much lower prices than those on the platform. Recently, it asked some of them to buy at least a small volume on the tender platform to minimise the risk of complaints.
A recent inquiry by moproweb.de shows that "David's" points are valid and can be substantiated. A trader reported that after a successful bid he was actually denied the Veterinary Certificate allowing him to Export the product to Russia or the EU. He also expressed the suspicion that Fonterra sells at very high prices to some of its subsidiaries and then asks them to kick-back some of the profits. Another major reproach against the trade platform is that the bidders never know at what price level they were eliminated from the bid.
In the midst of bank scandals, government corruption and social upheaval across the world, should this story really surprise us? Why should this story be so much more compelling than a plethora of others, lining up for our attention in the daily newspapers, the weekly journals or the monthly reviews? Well, that's because in this story one man dared to raise his voice against the behemoth, dared to throw the stone directly at Goliath, a stone that broke the mirror window to let us see the truth behind it, not just the reflection of our own moral turpitude in the face of lies and deception. This is a modern day David and Goliath story and that's why we should all pay attention, get inspired, and throw a few stones of our own!
Meet Goliath: Fonterra is New Zealand's largest dairy cooperative and is known to control directly (but mostly indirectly) more than half of the international dairy trade. It is the powerhouse in the industry, it has always tried to influence the trade in order to increase demand during New Zealand dairy season and stifle demand during the off season. However, these actions have reached their highest level of sophistication recently, through the creation of a “transparent” tender platform called www.globaldairytrade.com in order to try to build an image of fairness in business. For the untrained eye, this looks totally "Kosher". In fact, it is a clever way to manipulate the market.
Meet David: a dairy consultant who had the guts to write an open letter to EU Trade Commissioner Karel de Gucht today. The letter's content has been published on moproweb.de this morning and I have attempted to translate the main part that shows several strategies Fonterra is using to achieve their monopolistic goal. Here are the points that our "David" submits to the EU Commission.
1) globalDairyTrade does not deal with butter and Milk Protein Concentrate 85%.
The reasons are:
1.1) Fonterra has a special distribution channel agreement in several markets for its butter and does not want to disturb this business by indicating lower prices on its tender platform.
1.2) Milk Protein Concentrate 85% protein (MPC 85) is one of the few dairy products that Fonterra can export to Europe with only 3.4% import duties (and to several other important markets in the world). This allows Fonterra to influence the price in these markets indirectly (the full explanation is not given in the article but basically by combining the MPC 85 with lactose or milk permeate you can decrease the protein level of MPC85 and use it instead of Skimmed Milk, which will obviously have an influence on the prices of Skimmed Milk, a major part of the international dairy trade).
2) globalDairyTrade does not show the volume of traded products by category, but rather only an aggregate volume awarded.
The reason for this is that Fonterra wants to decrease the price of WMP (whole milk powder) during the European milk season so buyers get their product from New Zealand. The way it works is that they offer bigger volumes of WMP on the tender, so high supply, lower demand, bid prices will be low. When the season comes up in New Zealand, they offer smaller volumes of WMP during the tender session, triggering the inverse mechanism during the period that Europe has less milk (which means that Fonterra is maximizing it profits all year long while the opposite is happening for Europe). Moreover, Fonterra knows very well that some big buyers (the "Big Boys") need to buy New Zealand origin as it is written on their retail packaging, writes the consultant (which means that the volumes offered being small, those who need to buy, will have to offer exorbitant prices).
3) Applications to become a member on globalDairyTrade are routinely rejected based on "bogus" (pardon my colloquialism) reasons.
When they register to the platform, the aspiring participants need to indicate the destinations to where they will export the products purchased. If the destination could "disturb" one of Fonterra’s Big Boys, Fonterra will reject the application under the pretence that it does not accept brokers however, even if you are a distributor, the reason provided will be the same. Funny enough though, Europe's three largest brokers are active members of the platform, since Fonterra wouldn't want them to complain to the EU commission.
4) Fonterra sells to its Big Boys outside the tender, of course, at much lower prices than those on the platform. Recently, it asked some of them to buy at least a small volume on the tender platform to minimise the risk of complaints.
A recent inquiry by moproweb.de shows that "David's" points are valid and can be substantiated. A trader reported that after a successful bid he was actually denied the Veterinary Certificate allowing him to Export the product to Russia or the EU. He also expressed the suspicion that Fonterra sells at very high prices to some of its subsidiaries and then asks them to kick-back some of the profits. Another major reproach against the trade platform is that the bidders never know at what price level they were eliminated from the bid.
In the midst of bank scandals, government corruption and social upheaval across the world, should this story really surprise us? Why should this story be so much more compelling than a plethora of others, lining up for our attention in the daily newspapers, the weekly journals or the monthly reviews? Well, that's because in this story one man dared to raise his voice against the behemoth, dared to throw the stone directly at Goliath, a stone that broke the mirror window to let us see the truth behind it, not just the reflection of our own moral turpitude in the face of lies and deception. This is a modern day David and Goliath story and that's why we should all pay attention, get inspired, and throw a few stones of our own!
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