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August 12, 2013 | by  | in Opinion |
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The Danger of a Monopsony is Not a Fun Terror

The literal translation of ‘Aotearoa’ is ‘Land of the Long White Cloud’, though Land of Lots of White Milk might be more accurate. Our economy is primarily based on agriculture. Previous governments have failed to diversify the New Zealand economy, leaving our economy precariously based on milk, butter and cheese. As well as baby formula.

Foolishly, as if it is not bad enough that most of our economy is based on one suite of goods, these goods are all produced by one company: Fonterra. Fonterra controls 89 per cent of dairy produced in New Zealand, giving it a practical monopsony on most of New Zealand’s exports!

A ‘monopsony’ is the uglier, lesser-known cousin of the more commonly known but just-as-vicious ‘monopoly’. Under a monopsony, there is only one buyer of a service or product. In New Zealand, Fonterra has the legal rights to purchase 89 per cent of dairy, then package and process it for export. This sounds like a good idea right, should be efficient as bro, one-stop export shop bro? Wrong.

The Commerce Commission fought against the creation of Fonterra back in 1999, because almost all economists who don’t sniff glue know that monopsony/monopoly companies are bad for the host economies of their countries. Being the sole purchaser or seller of a good gives a company disproportionate power in the economy. Fonterra is able to exert huge power over the Government as a special interest. It is a milk bottle too big to spill.

The last decade is full of Fonterra’s folly. Despite it being produced just down the road, New Zealanders are charged prices for milk and cheese that are at rough parity with petrol. Cow effluent has, in the past, been dumped directly into rivers. Fonterra was also involved in the infamous Sanlu scandal, where dairy products in China were deliberately poisoned by a Chinese saboteur with melamine. People died, and Fonterra was a 43-per-cent shareholder. Luckily, due to early disclosure, Fonterra escaped sanction. The Chinese company directors were executed.

Which brings us to the current creamy, protein-rich clusterfuck. Fonterra has come forward and revealed that some baby formula produced for export contains a deadly bacteria that may kill. Which is being exported to a country where couples are only allowed one child, the most populous country in the world, China. The real kicker though? Fonterra knew A YEAR AGO.

Fonterra’s reputation is New Zealand’s reputation. While it continues to be a monopsony, Fonterra will take the risks, claiming the rewards, and not taking responsibility for its failures.

Break it up.

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