NEW Zealand dairy giant Fonterra's online auction system for whole milk powder has been blamed for wiping 40 per cent off the commodity's price in the past five months.
Since the internet-based auction, known as globaldairyTrade, started in July, the price of whole milk powder has dropped from $US4395/tonne to $US2585/tonne.
GlobaldairyTrade, which takes place once a month, opens each time with a 15 per cent lower starting price.
Fonterra's global trade managLing director Kelvin Wickham said the auction was all about "the international market getting a transparent price" and all globaldairyTrade was doing was "making it more transparent more quickly."
Mr Wickham also said the auction platform protected shareholders from being exposed to "huge up and down swings and supply and demand issues and possible international governments intervention or support at a time of volatility".
In its Situation and Outlook update, Dairy Australia said buyer activity had decreased in the weeks leading up to the auction. This was because buyers had been using the auction as a new pricing basis for trade outside the online platform.
Dairy Australia analyst Joanne Bills said the online auction was changing the way whole milk powder was traded.
"Given things are bleak with the economic outlook, people are holding back on purchasing to see what happens with the auction," Ms Bills said. "Mostly, the price doesn't recover. It is fine to want to have a transparent price system, but why not open at the closing price? If you put a price out there for something in an auction, people see it as a reserve.
"Buyers are waiting to see the price from the auction before they make their purchase."
Ms Bills said Dairy Australia was receiving feedback that the auction was still a factor in keeping prices down.
"With what is happening in China we should be seeing an increase in price because of more demand but we are not," she said.
New Zealand dairy farmers have criticised the system because they believe it is destroying Fonterra's ability to influence markets.
