Fonterra's much-maligned globalDairyTrade internet auction system has the backing of the Ministry of Agriculture and Forestry (Maf).
In briefing notes prepared for Federated Farmers dairy section chairman Lachlan McKenzie and released this week to the media, Maf said its analysis reinforced the view that globalDairyTrade was "not a negative influence on international dairy markets".
A critic of the selling process, Mr McKenzie said in an interview that he and Maf agreed to disagree, but he felt Maf had not understood the difference between marketing a product and selling it.
"GlobalDairyTrade is a seller. You've got something and you want to sell it.
Marketing to me is building relationships with customers and trying to extract the highest price because you are adding value to that customer."
He had "parked" the issue, saying the dairy industry was facing more important problems, but he would like an academic to investigate whether the system was adding value for dairy farmers.
Fonterra sold about 25% of its whole milk powder through the monthly internet auctions, but had plans to use the system for other dairy products too.
Its launch coincided with falling international prices and critics such as Federated Farmers and other dairy exporters said the selling system accentuated the decline, allowing buyers to sit back and delay purchases as the price fell.
But the Maf analysis said globalDairyTrade was not responsible for adverse shifts in international prices.
It found evidence prices of dairy products not traded on the system had fallen more sharply than whole milk powder prices.
A January report by NZX subsidiary Agrifax also attributed falling prices to factors other than globalDairyTrade.
Maf said the auction system provided a simple and efficient way to allocate resources to the highest-value use, provided a transparent price reference, and could evolve into an exchange.
"The purpose of an auction, therefore, is to discover a competitive price at any given point in time regardless of the market conditions at that time."
Fonterra did not have the power to control world dairy markets, as it had a 30% share of cross-border trade and just 6% of world dairy production, equating to controlling just 2% of world production: "hardly a position of market dominance".
Several factors were behind the price falls, including increased domestic milk production in Asia, the European Union, the United States, New Zealand and Australia, falling demand due to higher prices, and restricted credit caused by the financial crisis, plus resumed subsidies in Europe and the US.
