Fonterra chairman John Monaghan says the “sad demise” of Westland Milk as a cooperative and efforts by non-cooperatives to cut the milk price paid to farmers make it a critical time to consider the future of the dairy industry.
As the countdown begins to a Cabinet verdict after a wide-ranging government review of the fitness of the legislation (DIRA) governing the $17 billion dairy industry, Monaghan said Fonterra wants the outcome to be an industry which promotes investment in regional New Zealand and keeps the profits at home.
“While I can’t speak for the Government or make assumptions, I can say the co-op and many of our farmers have constructively participated in the Government’s review. When you look at the sad demise of Westland as a cooperative and recent lobbying by other processors to reduce the milk price paid to farmers, it’s a pivotal time to be considering the future of dairy in New Zealand,” Monaghan said.
“We’d like to see a dairy industry that promotes investment in regional New Zealand, where profits are kept at home for the benefit of all New Zealanders, where farmers are paid good money for their milk, and the unique attributes of New Zealand’s environment are protected.
“DIRA has a critical role in supporting this vision and we await the Government’s announcement.”
The Ministry for Primary Industries (MPI), which is leading the multi-government-department review of DIRA (Dairy Industry Restructuring Act), said it is analysing 188 industry and public submissions received and developing policy proposals, which it expects to provide to Cabinet for consideration by the middle of this year.
If the Government decides legislative changes are required, a bill will be drafted for consideration by a select committee and public submissions will be sought at that time.
A Cabinet paper on the announcement of the review in late 2017 said Agriculture Minister Damien O’Connor would report back to Cabinet on the results “early” this year.
MPI said it was still expected that O’Connor would report back to Cabinet in the first half of this year. The consultation process, which opened late last year, had received big responses from industry stakeholders and officials were still working through detailed information they provided.
With financially struggling Westland considering a buyout offer proposal from big Chinese dairy producer Yili, Fonterra and Waikato’s Tatua will be the only farmer-owned dairy cooperatives left in New Zealand, which used to be home to dozens.
It’s been more than 17 years since DIRA was passed to enable a merger of much of the dairy processing and exporting sector to form Fonterra, which at the time collected and processed 96 per cent of the country’s raw milk. Westland stayed out of the merger.
DIRA also contained a set of regulatory safeguards curbing Fonterra’s market power and designed to counter long-term risks to farmers and the economy from enabling a near-monopoly.
Today, with the emergence of privately owned processors and exporting competitors, many of them with foreign shareholders, Fonterra controls about 80 per cent of the raw milk market.
The review is considering whether DIRA is operating in a way that protects the long-term interests of farmers, consumers and the country’s economic, environmental and social wellbeing and if the law is still fit for purpose. The review is looking at both the export and domestic dairy market sectors.
Hot-button government decisions for Fonterra will include whether it should have to keep providing milk to large, export-focused rival processors at a regulated price, and whether it has to continue picking up all milk offered to it, regardless of how economic or not that is for the company.