The Bill makes changes to the Dairy Industry Restructuring Act 2001 (DIRA), which supports the efficiency and contestability of New Zealand’s dairy industry.
“When Fonterra was formed as the dominant market player, DIRA was established to ensure an efficient and innovative dairy industry to promote the long-term interests of farmers and consumers,” says Mr Guy.
“A report from the Commerce Commission last year found that competition is not yet sufficient to warrant deregulation at this point.
“Once sufficient competition is in place, competitive pressure, rather than the DIRA regulatory provisions, should drive the efficiency of New Zealand dairy markets. Competition helps keep businesses efficient, giving individual dairy farmers more options and choice.
“Around 100 submissions were received on the Government’s proposals to amend DIRA. These were split between those who wanted further deregulation of Fonterra and those who said Fonterra was still in a dominant position.
“Having considered these submissions, the Bill will introduce a number of changes to the DIRA regulatory regime.”
• Retain the DIRA regime for the time being, by preventing it from expiring;
• Require a review of the need for the DIRA legislation during 2020/21;
• Allow Fonterra discretion to accept applications to become shareholders from new dairy conversions from 2018/19; and
• Make other technical changes unrelated to the review of the state of competition.
The Government also agreed to alter eligibility to purchase regulated milk from Fonterra, and the terms on which Fonterra has to supply it.
This means Fonterra will no longer be required to sell regulated milk to large, export-focused processors from the start of the 2019/20 season.
All processors purchasing regulated milk will also have reduced flexibility in forecasting the volume of regulated milk they intend to purchase from Fonterra from the start of the 2018/19 season.
“These changes are to regulations which will be amended through the standard process, in parallel to the Bill being progressed through the House. I expect a range of views will be expressed during the Select Committee process.
“The consultative process provided new information about risks of some of the originally proposed changes to regulated milk – particularly for downstream markets and consumers.
“The Government is therefore deferring the consideration of those potential changes to regulated milk for Goodman Fielder and small or domestically focused processors.
“Officials have started a body of work to understand the complexities in this area and any outcomes will inform the next review.
“The next review will commence in the 2020/21 season – 20 years since DIRA was created. The scope of this review will be wider than just competition policy to take into account any impacts from the work on downstream milk markets,” says Mr Guy.