Milk price regulation

Andrea Fox at Stuff reports:

New Zealand would be committing ‘collective suicide’ if the government agreed to demands for an independent commission to set the domestic milk price, claims Fonterra chief executive Andrew Ferrier.

“It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around free markets,” Ferrier said in response to industry campaigners taking their call for a milk price regulator to Minister of Finance Bill English. “It would be a massive step back to the dark ages. There are internally established milk prices in the US and Europe and it is commonly known to be their failure. It is everything we have been lobbying against for 30 years [in overseas markets].”

I agree – regulation would undermine our trade policy.

“When governments intervene in industries they cause enormous secondary problems that are not easy to foresee.”

He cited the example of Argentina, about four years ago. When world prices were too high for the domestic market’s liking, the government set a domestic market price.

“Literally within weeks, all the major dairy companies figured ‘we can’t afford to sell at that price’ so they started exporting more. Why wouldn’t they? To stop the exporting [increase] the government put on an export tax … it actually bankrupted some companies. The legal implications are mind-boggling.”

If Fonterra is forced to sell milk for a lower price in NZ, than overseas, then their logical response would be to sell as much as possible overseas, and NZ could even face milk shortages.