Fonterra's controversial monthly internet auction was an effective way to sell dairy commodities and allow it to concentrate on marketing its higher value products, according to Fonterra officials and the company running the sales.
The globalDairyTrade has been confined to whole milk powder, but the offering will be extended in coming months with anhydrous milk fat (AMF) added in November and skim milk powder in July 2010.
Brad Miller, the head of auctions and competitive bidding for Boston-based CRA, which runs globalDairyTrade for Fonterra, said it was not designed to create a market, but provide confidence to buyers and sellers by establishing a fair price.
The president and chief operating officer of Fonterra USA, Martin Bates, said it was an ideal way to sell commodities and, having achieved that, Fonterra account managers had confidence and trust to sell the company's other products.
"It facilitates growing the pie," Chicago-based Mr Bates said.
It was an efficient, additional sales channel for commodities.
"This commodity focus is an efficient way to grow the commodity pie while also providing price visibility and allowing us to focus our resources on enhancing customer relationships. Fonterra is ultimately looking to grow our value-added business."
Mr Miller told journalists in Chicago that globalDairyTrade cost little to run, it was open and transparent, allowed maximum bidder interest and participation and had credibility through being operated by a third party.
Critics of globalDairyTrade said auctions drove down prices when markets were weak and questioned why opening bids each month started 15% below the previous month's closing price.
Mr Miller said the structure encouraged bidders to bid up to the market value while the low starting point was designed to attract interest.
The auction operated on a series of bidding rounds during which bidders stated the volume of powder wanted and the price they were prepared to pay.
As the auction progressed, a supply and price equilibrium was achieved, with buyers confident they were paying a competitive market value.
"Both sides need a win-win."
Most auctions lasted between 90 minutes and two hours.
There were 160 customers able to bid and Mr Miller said buyer feedback was that they liked being able to buy at a universal price.
Typically, 75% of customers who participated bought product.
Mr Miller said he was aware of comments the auction should have been delayed when global dairy prices were falling, but he said when prices were volatile the auction provided some stability.
Neal Wallace's trip to the United States was arranged and paid for by Fonterra.
