17 Mar 2017

Dairy industry changes risk harming farmers - consultant

6:24 pm on 17 March 2017

Dairy farmers should be worried about proposed changes to the Dairy Industry Restructuring Act 2001, which unwind Fonterra's open entry and exit regime, a farm consultant says.

Fonterra milk truck

Photo: RNZ / Rebekah Parsons-King

An amendment bill for the act, known as DIRA, was introduced to Parliament this week.

DIRA was created in 2001 to regulate the dairy industry when Fonterra was formed as the dominant market player. Last year, a report from the Commerce Commission found competition was not yet sufficient to warrant deregulation.

The new amendment bill requires a review of the need for DIRA during 2020/21. It includes changes to allow Fonterra to accept shareholder applications from new dairy conversions from 2018/19 and make other technical changes unrelated to the review of the state of competition.

Independent dairy consultant Peter Fraser said giving Fonterra the power to decide who supplied it was a concern.

"At the moment it's premised on farmers choosing Fonterra, but once we start to go down this track, it's Fonterra choosing farmers... if I was a farmer I'd be pretty worried."

Mr Fraser said Fonterra had already shown that it could be difficult with suppliers when New Zealand Dairies Ltd went bankrupt and Fonterra bought the assets.

"When the farmers wanted to come back to Fonterra - they [Fonterra] let them in, but on rather onerous terms and conditions... to get fair terms and conditions those farmers had to take Fonterra to court and they had to win at court.

"If I was a farmer I wouldn't want to have to take Fonterra to court all the time to get a tanker to pick up my milk."

Regulated milk regime in 'long retreat'

When DIRA passed in 2001, it introduced rules such as Fonterra having to supply milk to other companies to ensure competitors could survive in a market heavily dominated by one company.

Under the amendment bill, the government has agreed to alter eligibility to buy regulated milk from Fonterra and the terms on which Fonterra supplies it.

This would mean that, from the start of the 2019/20 season, Fonterra would no longer be required to sell regulated milk to large, export-focused processors.

Mr Fraser said this was a kick in the guts for innovation. With a regulated milk regime there was a 365-day milk supply, which people could buy as a right off Fonterra.

"That right has been seriously eroded.

"This government has ... moved away from a milk market and just banned people from buying it."

Minister for Primary Industries Nathan Guy said the changes would reduce the flexibility for processors buying regulated milk to forecast volumes.

"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.

He said the government was deferring the consideration of those potential changes to regulated milk for Goodman Fielder and small or domestically-focussed processors.