A narrow-focused review of the legislation that formed Fonterra would be at “our peril” for the issues now faced by the dairy industry, says Agriculture Minister Damien O’Connor.
A widespread review was needed because of its complexity. The industry had been built on the back of legislation and there had to be caution when changes were made, said O’Connor, speaking at the Farmer’s Forum at Mystery Creek.
“We have opened the door to competition, but there’s still the obligation from Fonterra to pick up milk if you produce it and there are open-exit provisions as well.
“Now we change those at our peril.”
The Government has released its terms for a review of the 17-year-old Dairy Industry Restructuring Act 2001 (DIRA), which provided regulations for large co-operative Fonterra and protected the long-term interests of farmers, consumers and the wider economy.
O’Connor said a review of dairy industry legislation would help the dairy sector get in shape for the future.
It would cover the open entry and exit for farmers, the raw milk price setting process, contestability for milk, the risks and costs for the sector, and the incentives or disincentives for dairy to move to sustainable, higher-value production and processing.
Fonterra’ obligation to pick up milk put pressure on the co-operative to build more processing sites, but if that obligation was removed, it may also remove that obligation allowing people to leave the co-operative.
“We want to try through the Commerce Commission and through our normal commerce law, have a fair protection for the farmers, for the company itself and for the wider economy.
“It’s complex [and] we went for a wider review because as you know the industry has been in the spotlight and just changing a couple of provisions around open entry and open exit and then the obligation to supply milk is not sufficient. Lets get it out on the table let’s have discussion and lets re-set the dairy industry so that it can succeed into the future.”
The Ministry for Primary Industries would consult widely throughout the review, including surveys and formal consultation later in the year.
Federated Farmers dairy chairman Chris Lewis said he was looking forward to consulting on the review with farmers and the Government. Fonterra and fair competition were key aspects of the legislation and he hoped DIRA would stick to its principles.
South Island company Synlait Milk said it supported the review’s terms of reference.
“We are glad to see a comprehensive scope in the terms of reference and are pleased it will look beyond the current regulatory framework to address some of the fundamental issues facing the future of our industry,” managing director and chief executive John Penno said.
“At the end of the day, we want any outcomes to support a sustainable and high value industry in New Zealand. We’re confident this will allow the industry to continue to flourish while delivering a sustainable future for dairying.”
In a statement, Fonterra said the review was well overdue.
“The dairy industry has changed dramatically since 2001 and has become highly competitive, particularly with the relatively large number of new entrants in the last five years.
“These international new entrants are often backed by deep capital and global businesses. They do not need an extra leg up via milk from New Zealand farmers.”
This new competitive environment meant the issue of open entry, where Fonterra had to accept all milk from new suppliers, was a critical part of the review, a spokeswoman said.
“Open entry limits our farmer-shareholders and the industry’s ability to maximise value for New Zealand. It distorts investment decisions and leaves Fonterra’s farmers underwriting risk for competitors, who cherry-pick their suppliers.”
By: GERALD PIDDOCK