My impression was that much of the milk powder was still in storage – so I’m not sure if Fonterra’s liability will be through having to refund people further down the chain, or whether it was still in their inventory.

Either way, it is likely to hit payouts for the year in some way – exactly how much is still an unknown, mainly because we are still all a bit short on information!

Agreed, they will not be happy. But, I have also just learnt that it happened over a year ago – so am thinking that farmers have been paid for (and probably spent) that product. Seems to have a big impact on the Fonterra share price though – so all dairy farmers will be a bit sad if they were thinking of seeling their farms this week.

I suspect that, in the near term, all the anger is going to go on Fonterra. Tbh, I would like to see a bit more information first – I suspect that other organisations within the supply chain (farmers) are going to be furious. Third safety crisis in the last few years …

I think that is an interesting question when the market structure is “imposed from above” … as it is in this case! If the market structure was set organically, I would expect this to be taken into account when firms decide whether to integrate or not.

“It turns out that while NZ might make 1% of the milk grown in the world
(your figure above) it is involved in more than 30% of the global trade
in milk (ANZ economist on the radio this morning). So maybe more than
just a residual player in the market.”

Indeedy, it is 30% of world export trade. But it is jumping into a series of large markets as a residual claimant – the world export line is a common misnomer IMO. Now in some market it may become more than a residual claimant – that is fair – but the 30% figure exaggerates Fonterra’s ability to control price, which is why I prefer to compare it to total supply 🙂

” Fonterra is a creation of the State, established through legislation.
And, as we saw with a looming disaster in the quality of tertiary
education (as provided to foreigners) some years back, China does not
make the distinction. To them, if there is a problem with a firm (or a
tertiary provider) they expect NZ to fix it up, and smartly.”

Indeed – however, I’d hope Fonterra has enough institutional structure to see this as in their own interest!

“And, interesting to ponder the effect on the economy. It seems that the
dollar has fallen this morning (it is claimed due to Fonterra fallout)
so dairy farmers will get more for their milk and the rest of us will
pay more for our petrol. A lower dollar may keep the Reserve Bank’s
finger odd its trigger for longer – so some of us may do OK out of this
disaster”

The milk powder that has to be thrown out is worth $0 no matter what happens to the dollar – I don’t think farmers are going to be too happy!

And, interesting to ponder the effect on the economy. It seems that the dollar has fallen this morning (it is claimed due to Fonterra fallout) so dairy farmers will get more for their milk and the rest of us will pay more for our petrol. A lower dollar may keep the Reserve Bank’s finger odd its trigger for longer – so some of us may do OK out of this disaster

I assume that was meant to mean “Our milk”?

“However, i think it would be sensible for someone to check that the regulation that we do have is working”

100% agree – tells us that there needs to be an investigation. Food safety is not something we should mess around with, and we are lucky no-one appears to be hurt.