Hon JIM ANDERTON (Minister of Agriculture) Link to this
I move, That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a second time. The Dairy Industry Restructuring Amendment Bill (No 2) was introduced into the House on 14 August this year. It was read for the first time on 21 August and was referred to the Primary Production Committee for consideration. The committee received and considered 10 written submissions on the bill. The bill amends the Dairy Industry Restructuring Act 2001. It provides for the export rights to 11 designated dairy export markets, at the expiry of the rights currently held by the Fonterra Cooperative Group. The bill will complete the transition begun in 2001 to a new industry structure, without the monopoly powers of a statutory marketing board. It will also provide certainty to all the dairy industry’s stakeholders about the future access they have to these markets.
As well as provisions relating to dairy export markets the bill also extends existing regulation-making powers relating to the New Zealand Dairy Core Database. This is an important industry-good asset containing information on dairy herds and their production performance. The key issues raised in the submissions on the bill related to which export markets should have all restrictions removed and which should continue to be regulated under the new system, the term of allocation for export licences, how long allocated export licences should be valid for, and the scope of powers given to the chief executive of the Ministry of Agriculture and Forestry for the purposes of monitoring and enforcing compliance with new allocation rules.
Issues about the current management of the New Zealand Dairy Core Database were also at issue. Of the current 11 designated markets, the bill provides for all export restrictions to be removed from two markets and from parts of four other markets; in other words, these two markets will no longer be designated markets. In the case of four further designated markets, new, narrower definitions are provided for. The bill provides for export licences to all remaining designated markets to be reallocated periodically among New Zealand dairy companies, on the basis of each company’s share of total milk solids collected from New Zealand dairy farmers. The new arrangements will come into effect as the initial allocations made to Fonterra in 2001 expire, from now through to 2010.
Some submissions to the committee strongly supported removing export restrictions to certain markets, as this would complete the transition begun in 2001, and provide more export opportunities for dairy companies. However, one submission strongly opposed removing export restrictions to some markets, on the basis that this could risk destruction of some value to New Zealand interests. The committee has not recommended any change to which market should remain regulated and which should have restrictions removed. I believe that the committee has considered this matter carefully in the context of the relevant purposes of the principal Act, and I commend its final decisions and recommendations to the House.
The fact is that for some markets, because of the particular import arrangements operating, export licences allocated to multiple participants would not be legally enforceable. The New Zealand Government could therefore not guarantee that licence holders would be able to exercise their rights, even if those rights were actually given. Therefore, the New Zealand Government, by removing export restrictions for these markets, will be providing opportunities for a wider group of New Zealand - based companies to expand their export activities. For one other market the benefits of regulation are not sufficiently large to justify the cost of continuing a regulation.
The bill provides for export licences to be allocated to multiple participants on a periodic basis. This was to be done annually, for the next 3 years, which was proposed in the bill, but moving to every 3 years—that is, triennial allocations—from 2011 onwards. The proposed triennial allocation period was intended to provide a balance between the interests of growing companies, which would tend to favour a shorter allocation period, of course, and those of established companies, which would tend to favour a longer allocation period. The committee has recommended that export licences should always be allocated annually; in other words, the committee recommends not moving to triennial allocations in later years. As the committee points out, no matter what the allocation period is, companies will be able to predict with relative accuracy what their share of export licences will be, as each allocation approaches.
The bill provides a number of powers to the chief executive of the Ministry of Agriculture and Forestry for the purposes of monitoring and enforcing compliance with the rules of allocation for export licences. These include powers of entry, search, seizure, and the power to require certain information. After seeking clarification of the rationale and scope of these powers, the committee has recommended a number of amendments. These amendments aim to clearly define when and how these powers will apply, and to generally make the monitoring of the compliance regime more workable and effective. I believe they are all in the spirit of good legislative practice, and I am therefore appreciative of the committee’s work in this regard.
The bill extends existing regulation-making powers relating to the New Zealand Dairy Core Database, so that if a copy of the database is vested in an entity other than the current operator, which, of course, is the Livestock Improvement Corporation, regulations can be made to apply to any new entity. This will ensure the ongoing integrity of the database, for the benefit of the whole industry.
This bill represents an important step in the evolution of the New Zealand dairy industry. It provides a fair and equitable mechanism for a wider group of companies to access designated dairy export markets. I would like to thank the chairman and members of the Primary Production Committee for their expeditious but thoughtful consideration of the bill and for their timely report, which was tabled on 31 October this year. I commend the bill to the House.
Hon DAVID CARTER (National) Link to this
National will be supporting the Dairy Industry Restructuring Amendment Bill (No 2) through all its stages, and I thank the Minister for his comments. To my mind this legislation shows the maturity of the dairy industry and the way it has moved a huge amount since the late 1990s, when we considered whether there was a better way than the old mechanism of sale through the New Zealand Dairy Board. Following the initial restructuring of the dairy industry, we saw the formation of a very large company called Fonterra, which collects 95 percent of all milk produced in this country. The company has clearly done very, very well in the last few years, and I congratulate Fonterra on its performance.
I also share the celebration of dairy farmers who now find themselves seeing a record payout. This is driving the whole of the economy, and if members want further proof of that, they can just look at the comments made by the Governor of the Reserve Bank when he reviewed interest rates a couple of times ago. He made the comment then that interest rates would remain high because of the Fonterra payout. It was interesting that he made those comments as the payout was being predicted by Fonterra, and certainly before any dairy farmers had actually received the benefit of that additional payout.
What the statement proves, and what all New Zealanders need to realise, is that the economy of New Zealand is hugely affected by the success of the whole of the dairy industry. Because of Fonterra’s dominance within that industry, the success of Fonterra affects the livelihood and the standard of living of all New Zealanders. So National is pleased at this further step in the maturing of the dairy industry, and is certainly heartened by the performance of the dairy industry since that time.
The Minister said that the Primary Production Committee handled its role efficiently and reported back on time. Again, it is a disappointment to me to find that we are in urgency—the final rush before Christmas—having to now put this bill through all its stages, when it has been sitting on the Order Paper for the whole of November and could have been done under the normal process. But the legislation must be passed by the end of this year. If members look at the commencement date, which is covered in clause 2, they will see that the legislation will come into effect on the receiving of the Royal assent. We all know that even the Governor-General requires his Christmas holidays, so here we are in urgency making sure that this bill is actually put through. I acknowledge that the whips rang me quite recently to say that we would be changing the Order Paper this morning as a means of making sure that this legislation would go ahead of the taxation legislation. That is how critical it is that the bill be passed.
I will make a couple of comments about the procedure through the select committee and about one or two of the changes we made. As the Minister said, there is the issue of the allocation period for licences. We heard submissions both ways as to whether it should be on a 3-yearly or a 1-yearly allocation basis. Although we were persuaded in the end that there would be an additional cost associated with an annual allocation process—we did not think those costs would be huge—we were very keen that the industry maintained a system that allowed maximum efficiency within the industry. That means that we are encouraged by the dairy industry restructuring legislation and by the way that new players have been coming into the scene and competing against the dominance of Fonterra.
I do not think that Fonterra has much to worry about, because it is such a dominant player, but these new players—the likes of Synlait and Open Country Cheese—have been good for the industry by giving the farmers of New Zealand other choices as to where they may decide to send their milk. We were keen to make sure that the allocation process reflected what we predict, from the select committee point of view, will be ongoing new entrants into this industry. This has to be good for farmers and also for the whole of the New Zealand economy.
The committee was certainly also concerned, initially, about issues around the powers of entry, search, and seizure. We put a lot of effort into this, but at the end of the day the committee was convinced that whilst the measures within the legislation are quite severe, they are necessary. Under no circumstances can the Government entertain not being in a position to carefully monitor compliance with the actual figures by which these quota allocations are finally made. They will be made on the basis of the milk collected from individual farmers. On that basis it will be a direct proportional share of the dairy industry, and the Government needs to have the ability to make sure that that system is sound and complied with by the industry—not that I suspect any of the players who are responsible would attempt to cheat that system.
The final issue I will touch on is the core database. We received submissions—particularly from one company, Ambreed New Zealand—that argued that what is in place now has not delivered fairly, as was expected by the select committee when it heard the original dairy industry restructuring legislation back in early 2000 or 2001. Having listened to the arguments from Ambreed, I sympathise with the position it finds itself in. As it clearly said to us, price equals access, and I think there is an issue around whether we got that legislation right in the original Dairy Industry Restructuring Act. Having said that, I point out that the committee was quickly made aware that the very issue raised by Ambreed was actually outside the scope of the bill. I think it is important that Parliament notes the words in the report from the select committee: “This matter, however, is outside the scope of the bill, but needs further investigation.” I suspect that over time that will occur.
This legislation is necessary. It has to be passed by the end of this year—in other words, within the next few days so that the Governor-General can put his signature to it and then himself have a holiday. I think the select committee did a very admirable job with this complex legislation. This legislation will put the dairy industry in good heart for the future. This industry is also of vital importance to New Zealand.
Dr ASHRAF CHOUDHARY (Labour) Link to this
I will take just a very brief call on the Dairy Industry Restructuring Amendment Bill (No 2). As the previous speaker said, this is a bill on which the Primary Production Committee took a very bipartisan approach. We all worked together on it for the farmers of this country and for the industry. We are very pleased it is to be passed before the end of this year, because it will be applicable from early next year.
The bill removes the restrictions of exporters through to markets, and, as was highlighted before, it gives us a reference period for determining the allocation. That means the data will span three seasons rather than two, which was originally in the bill. Also, it highlights the power of entry, search, and seizure of documents in the workplace and talks about the control of a core database.
Overall, it is a very good bill. As the Minister said before, it is really an evolution of the dairy industry from 2001 onwards. It will certainly allow exporters a much better and more streamlined opportunity to export our dairy products around the world.
With those few words, I commend this bill to the House and look forward to the deliberations on it. Thank you.
ERIC ROY (National—Invercargill) Link to this
As those listening may have ascertained, there is a great deal of unanimity on the Dairy Industry Restructuring Bill (No 2), so I will not be taking a very long call. I think there are some salient things that need to be said, and I will run through those.
The first is that the Primary Production Committee, under the chair of David Carter, continues the tradition of looking for the best outcomes in solving whatever comes before it. There is always a great deal of goodwill and unanimity about what we end up doing, and this bill is no exception. We recognise the significance and importance of the dairy industry to New Zealand, and we gave earnest consideration to the issues raised in the Dairy Industry Restructuring Bill (No 2). This bill was quite specific. It was not wide ranging, and, as has been suggested, some submitters wished to bring up matters that were not contained within the bill. Whether or not we are sympathetic to them, we are limited in what we can and cannot do.
When the Minister of Agriculture introduced this second reading, he made a comment that I think we can identify with. He said that this bill is part of the evolution of the dairy industry. The dairy industry is New Zealand’s most significant exporter. Fonterra is our biggest company; it generates huge amounts of revenue through exports. But the dairy industry is an evolving industry, and one of the interesting things is that we have seen that it does have the maturity to actually advance. It is not trapped in any kind of time warp.
Besides Fonterra, there are now seven other players, even though their combined mass occupies about 5 percent of the dairy industry. The provision allowing those players to operate is what we actually had to deal with, and the allocation of opportunity in the area of export markets. There are perhaps four conditions that come into decisions about this matter. There are the conditions and rules of the importing country, the desires and expectations of the exporters, the desires and expectation of the producers, and the international rules that exist under the World Trade Organization. All those things kind of come together, and we had to look at allocation of specific markets. Other speakers have outlined the issues surrounding that.
As David Carter said, one of the issues that perhaps has a bit of traction but is not within the bill is the way in which the core database is operated. His comment that price is access sums it up. I think an issue that the industry needs to address is whether what exists now is serving the industry in the best possible way. If the industry is to continue to progress, it needs to have all the information in the database relatively available to other players; otherwise, we are limiting the genetic resources, the sharing of information, and all of those matters. As I said, this matter is outside the scope of the bill and therefore was something we could not consider. However, it may well be addressed at a different time in a different forum.
I am pleased that the Minister is prepared to accept all the amendments recommended by the select committee. We gave quite considerable consideration to how this measure can best operate, and I think we are all pretty much happy with the bill as it is reported back in this second reading. As has been stated, National will support this bill through all its stages.
NATHAN GUY (National) Link to this
I think it is important that I make a contribution to this debate. I want to put it on the record from the start that the company I am involved with is a Fonterra supplier and a shareholder in LIC, but the Dairy Industry Restructuring Amendment Bill (No 2) is going to enable greater competition in the dairy industry, which I think is fundamental. The important point I want to make around those two companies is that there are seven players outside of Fonterra, albeit they are small players in the overall dairy industry. But it is important that the markets are opened up and that Fonterra does not have a monopoly over them. I think that that is what this bill sets out to achieve.
I also make the particular point that here we are, at 20 to 12 during the day. We are in urgency—we do not normally sit at this time of the day—to put this bill through Parliament because it is important. But I say to the Minister and the other members over on the other side of the Chamber in the Labour Government, and to those members who prop up the Labour Government, that this bill has been lurking around on the Order Paper for about the last month. Yet here we are, having to put this legislation through in a mad panic under urgency. It is important for the cornerstone of our economy that it goes through today—extremely important—and we will support it in going through. But I make the point that the Government has had to slam the House into urgency because it is so hopeless at managing the things on its Order Paper. This is a hopeless Government. It has had a month to get this legislation through, but here we are today, at 20 to 12, having to put it through under urgency.
Another important point that I make on this bill—and I will probably make further contributions on it when we get into the Committee stage—is that it will allow export licences to be allocated on the basis of a proportion of the milk solids collected from dairy farmers, with a minimum threshold of 0.1 percent of the total milk solids collected. Those export rights will become available between 2008 and 2010 on a yearly basis. That is a very important point to make there. Those rights outside that period will become available from 2011 on a 3-yearly basis.
The other important point, which has been touched on but which I think it is worth making a further contribution on, is around the core database that LIC tends to have a monopoly over in the current regime. It was a little outside this bill to get into the nitty-gritty of that, but I think that with Mr Carter’s chairmanship of the Primary Production Committee, it may be something that the select committee seeks to have a further look at in 2008. It is not necessarily fair that price dictates the level of service for the other minority companies that are trying to get involved in providing a service and dealing with the core database.
So those are some issues that I think we need to make a contribution on. I would like to get the Minister, in the Committee stage, to talk about the definition of milk solids, because that would be an important contribution. I think the Minister should tell the House that whether “milk solids” is written as one word or as two words is significant, because the words have a different definition. So it would be worthy of the Minister in the Committee stage to make a contribution and explain the definition and why that is so, for the benefit of listeners.
National is supporting the passage of this legislation through the House. We wonder why we need to be in urgency to get it through, because if the Government were organised we would not need to be ramming it through under urgency.
R DOUG WOOLERTONIn reply to David Carter, I say we will pay it back, on our own terms and when we think it is appropriate—with the appropriate hype and all the rest of it as members would expect. So I tell those members they will not miss it when we do it—
Colin King—and they should keep an eye on the news, and they will get there.
I think that it is right to say that New Zealand First supports this Dairy Industry Restructuring Amendment Bill (No 2). I was listening to the previous speaker Nathan Guy, and I just want to run over the things that have made the New Zealand dairy industry great.
I know that a lot of people want to run over me, and I know the reasons they want to. But I will talk about what made the New Zealand dairy industry great, and why we in New Zealand First have concerns about it. A lot of it is encompassed in this bill, but not in the detail. This bill allows the transfer of quota that was shifted from the New Zealand Dairy Board to Fonterra, and that will now go further out to other dairy companies. I will give a couple of illustrations of that.
The New Zealand dairy industry has done well, because we have ensured that it stayed in the ownership of New Zealand farmers and in the ownership of New Zealand, and we have made no bones about the fact that we would protect that industry in any way, shape, or form that we could. It has been a longstanding joke that if the Dairy Board of the day got into trouble it would come to this Parliament, talk to the Prime Minister and the Minister of Agriculture, and ensure that laws were put in place to guard the dairy industry. Now we are seeing proposals to split up the dairy industry and to open it up to overseas owners and wider ownership.
People do not remember, and many people do not understand, that it is the quotas we hold, and the quotas that have allowed us to get into markets—mainly in Europe—that have provided the cream on top of the cake for the dairy industry. Those quotas were held and jealously guarded by the Dairy Board and by Fonterra. Now they are going wider, and I hope that the companies that pick them up respect that, and guard them as jealously and as carefully as has been done in the past.
Dairy farmers, traditionally, have understood something that beef farmers, sheep farmers, and wool farmers in New Zealand have not understood. They have understood the value of vertical integration. Individual farmers have understood that they could not market their products themselves, and they could not turn milk into cheese themselves. So they hired “suits” or, in the early days, white-coated people, dairy factory managers, to do those things while the sheep, beef, and wool industries allowed overseas interests to dominate the market. They became price-takers, and the Vesteys, Hellabys, and all the rest of them clipped the ticket on everything. So that made those industries that allowed overseas companies to dominate the marketing of their products weaker than the dairy industry.
The dairy industry kept our marketing in-house, we kept it in New Zealand, and we make no bones about it. That has been the strength of the dairy industry. Dairy farmers have always understood that they had to hire marketers, they had to market manufacturing people, and they had to market their products in other countries while retaining ownership, retaining control, and making sure the returns thereof came back to this country.
A couple of smaller dairy factories are starting up around the country as we speak. One is called New Zealand Dairies Ltd, in Studholme, not far from Timaru, but we are seeing in those companies a lack of capital. We are seeing them go to the people they are selling to. In this case it is a bunch of Russians. I do not mean a bunch of Russians in that they are not honest; I mean—
No, no. This is a fact, and these people have put money into this company and now want to control it. I say to Mr Carter and to this House that xenophobia is what has made the dairy industry great. The dairy industry did not follow the stupid, naive market views that were followed by the meat industry, which is now giving profits to everybody except farmers; or the wool industry that is now on its knees, giving profits to everybody except farmers; or the sheepmeat industry, which is now giving profits to everybody except farmers. That is what—
Oh no—it is not rubbish, because the dairy industry that once was the poor cousin of agriculture now dominates agriculture and is earning in excess of 20 percent of our export earnings—because of xenophobia. We decided we would keep this industry within this country and we could control it, and we should still be doing that. We should not allow other countries or other people to come in and take the profits away from our farmers. We have the ability in this country to provide the money we need for this industry.
This is not about Stalin. I would just like people who are listening to know that the National members are laughing and mocking in a way that seems quite sad to me, because I grew up in a National Party that took the ownership of the dairy industry seriously. It believed that the ownership of the dairy industry should be in the hands of New Zealand farmers. That was the National Party I grew up in, and now National members mock me for making this speech to say that this industry should be New Zealand - owned. I am not saying that Fonterra should have a total stranglehold on the industry—
—but I am saying there should be legislation ensuring that whoever starts up dairy farming in this country is a New Zealand company with New Zealand ownership. I hear Mr Eric Roy, who now comes to this Parliament to earn the substantial part of his living. Mr Roy owns a big sheep farm down out of Gore but it does not make enough money for him, so he has to come to this Parliament as an MP to supplement his income, and now he sits here and mocks me when I am trying to protect the dairy industry. Instead of flitting around the world, why did he not involve himself in his industry and protect it while the dairy people were protecting theirs?
Well, the member can put his record up against mine. I would like to see that, actually, because my record on dairy company directorship is a damn sight better than Mr Eric Roy’s record on his pitiful sheep-farming career. I tell members that if they look at the returns going to sheep farmers and at the returns going to dairy farmers, then therein lies the story. There is no need to look further. But because of a philosophical belief in unfettered markets, Mr Eric Roy is happy to see the dairy industry go to whoever is the highest bidder. We in New Zealand First are not.