Dairy Industry Restructuring Amendment Bill (No 2)

Hon JIM ANDERTON (Minister of Agriculture) Link to this

I move, That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a third time. The bill was introduced into the House, as I said during the Committee stage, on 14 August this year. It was read for the first time on 21 August, then referred to the Primary Production Committee for consideration. The committee tabled its report on 31 October. The bill has now had its second reading and has passed through the Committee of the whole House.

The New Zealand dairy industry has become the country’s largest and most important export industry. For the year ended 31 March 2007, the dairy industry contributed a total export value of $8.4 billion, representing 25 percent of total merchandise exports. New Zealand dairy products are exported to 152 countries.

At the farm level, dairy accounts for an estimated 35 percent of the agricultural sector’s GDP and 2 percent of total GDP. When we include dairy manufacturing and the dairy industry’s contribution to other sectors, such as wholesale trade, we see that the wider dairy industry’s contribution to total GDP is around 7 percent.

The bill is the obvious next step in the industry’s transition to a new structure without the monopoly powers of a statutory marketing board. In the 6 years since the Dairy Industry Restructuring Act was passed, the industry has shown itself to be extremely capable of not only surviving but also thriving in this less regulated environment. This bill will provide the industry with certainty about designated export markets, and will therefore allow industry players to plan for the future with confidence. I believe that this is why the industry has expressed general support for the approach taken in this bill.

The industry has shown itself to be a highly successful organisation and industry sector in reaching world markets and helping New Zealand to be well positioned for the future. The framework contained in this bill will allow all industry players to participate fully in that success and continue to position the industry well on the world stage. I commend this bill to the House.

Hon DAVID CARTER (National) Link to this

National supports the Dairy Industry Restructuring Amendment Bill (No 2) and congratulates the Government on finally bringing this matter before the House today. I think that when people analyse the contributions made in the debate we have had in the second reading, the Committee stage, and now the final reading in quick succession, the interesting Hansard will, of course, be that of the New Zealand First member Doug Woolerton. I thought I would make just one or two points, because a lot of the information he stated in his contribution—which was absolutely incoherent, I might add—is incorrect.

First of all, Mr Woolerton congratulated the dairy industry and noted its huge progress over the last decade, and I support that. But he then went on to criticise the Dairy Industry Restructuring Act of 2001, which led to the formation of Fonterra. So in one breath he was criticising Fonterra and its performance, and in the next breath he was saying what wonderful progress this company has made for the benefit of all New Zealanders. I find that logic very, very difficult to understand.

Mr Woolerton then spoke against two of my former colleagues in this Parliament. I am referring to the Rt Hon Wyatt Creech and the Hon John Luxton. He said that both those people drove through the dairy industry restructuring legislation in 2001, and he implied quite definitely that they did that for personal gain. For the sake of the record, I say that neither of those gentlemen was in Parliament in 2001 and they could not have been involved in the debate. They were not in Parliament. To be absolutely fair to them, I note that by that stage they had retired from Parliament. They saw an opportunity under the dairy restructuring to set up a very successful dairy process called Open Country Cheese, and I congratulate them on their ability to establish that company. It has been a significant contributor to the very regional economy that Mr Woolerton came from.

The final point is that Mr Woolerton, having railed against the Dairy Industry Restructuring Bill (No 2), concluded his remarks by saying that the bill was dreadful legislation but that he would vote for it. I think that just goes to show something about Mr Woolerton’s career. He has been involved in the National Party and in New Zealand First, and he now completes his parliamentary career as a true and committed member of Helen Clark’s Labour team.

Dr ASHRAF CHOUDHARY (Labour) Link to this

I will take just a brief call. First, I thank David Carter for his good chairmanship of the Primary Production Committee. We work very closely and in a bipartisan way on that committee.

Earlier on, Nathan Guy suggested that the Minister should probably define the term “milk solids”. I will define that term for the House. As a scientist I guess it is probably my job to explain these things. We have two definitions. “Milksolid” as one word is milk solid that contains milk fat plus protein. The definition of the second term, which consists of two words, “milk solids”, is milk protein and fat plus other elements in the milk. So two clearly defined words have been used, I say for the sake of clarification. The farmers get paid on the basis of milksolid—one word—which is milk fat and milk protein, and, of course, the levies to the dairy farmers are also based on that definition. With that explanation I commend the bill to the House.

ERIC ROY (National—Invercargill) Link to this

I too will take a brief call in the third reading debate of the Dairy Industry Restructuring Amendment Bill (No 2). It is not so much that there are concerns that some things are not being covered, but that all that is said in the debating process is recorded in Hansard, and at future times people will look at that record and interpret the bill against that. I am largely stimulated by the remarks of the New Zealand First member Doug Woolerton, who seemed to have some comments to make about the ills of the meat industry in relation to the dairy industry.

I ask members to let me just place it on the record that I, along with the rest of the National Party, am essentially very proud of the achievements of the dairy industry. We think it is great that the dairy industry is the leading industry in New Zealand. We are pleased with the way that it has gone forward, particularly after the Dairy Industry Restructuring Act of 2001 was passed, when Fonterra came forward. If the measure is the viability of the dairy industry and the price increases we are seeing in dairy products right now, we can see that rather than the restructuring being an impediment to development, the industry has done exceedingly well. I note, coming from my part of New Zealand, Southland, the great desire of people from the North Island to invest in dairying in the south. If that is an indication of the state of the dairy industry, it is certainly doing very well.

Mr Woolerton alluded to the comparative situation between milk and meat, and said that if we transferred a xenophobic cooperative structure into the meat industry we would immediately solve all the problems, or that had we gone there initially we would not have the problems in the meat industry that we have today. There are some significant issues which I think change the whole landscape.

For example, those who represent dairy farmers in terms of their processing and marketing are under a greater degree of scrutiny than anybody else, because the farmers are themselves under scrutiny. Every single day, sometimes twice a day, when dairy farmers milk they have an opportunity to measure their own performance. They might note that they have more milk and the milk vat is up one day, and ask what they did or did not do. So dairy farmers have a very, very rigorous way of measuring themselves, and they tend to apply that to those who represent them.

The second thing is that milk is a homogenous product. Milk is pretty much the same all over New Zealand. There are variations in butterfat levels and slight variations in milkfat percentages, but, essentially, the product is the same. That is not so in the meat industry.

Thirdly, milk stores relatively easily after it has been processed in comparison with meat products. Particularly as the future of the meat industry is moving into chilled products, meat is becoming even more fragile and requires a greater movement of product through, so it cannot be stored for any length of time till the market is just absolutely right.

Fourthly, there is just an acceptance of milk generally as a product. If people in the world who have never consumed Western products before are given a variety of foods to consume, of the three products that they will consume again and again, two of them are milk products: ice cream, and chocolate. There just is a universal acceptance of milk as a product in the world, and there is a great desire of Third World countries to consume more calcium in order to be healthier and grow better, and that association is with milk products. So there is a universal acceptance of milk. Which product do dairy farmers have as a competitor? Well, they have soy milk. That is virtually the only competitor that is out there to milk, so they have captured an opportunity that is just there because there is such a great demand for the product. But in the case of meat, it competes with a whole range of animal and fish proteins that are out there, so it is in a much more competitive environment. So just to say we should apply this to that, and that will solve all the problems, is an issue. I think we needed to simply place that on the record.

As has been said, the milk industry—the dairy industry—is the foremost part of the New Zealand economy. It is important that we pass this legislation today so that the industry can take the next steps, and so the people who are now involved in company structures outside of Fonterra have an opportunity to provide some stimulus to the industry, not on a competitive basis—well, not specifically for that reason—but with product development, and with opportunities in packaging, marketing, and branding. They are in the marketplace enhancing and increasing the appreciation of the products that are produced out of New Zealand. Yes, those people are a very small section of the industry, but we also need them as a measure against Fonterra. How does one measure a monopoly if there are no other players in the market to say how well they are doing? When they do that, we actually have some measures. I see all those things as healthy, and I see it as a sign of a company that is viable, healthy, growing, maturing, and serving a very, very useful part of New Zealand’s economy.

National supports the third reading of this bill.

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First also supports the third reading of the Dairy Industry Restructuring Amendment Bill (No 2), but it does so with provisos—our vote will not come with a proviso; one either votes for a bill or one does not—and with warnings. This bill is at the end of a very long chain, which started with the Dairy Industry Restructuring Act. To guard ourselves against the ramifications of that Act, we had the formation of Fonterra, which came after that Act. The farmers believed that they needed a bigger company in order to protect themselves from competitors. I was a very strong advocate for Fonterra. I was opposed to the Dairy Industry Restructuring Act, but once that had passed I was a very strong advocate for Fonterra. The National Party was not, and many other people were not as keen on Fonterra as I was. My faith, and New Zealand First’s faith, in Fonterra has been realised. But members should make no mistake about it: we are now in a situation where Fonterra will be very different from what it has been, and in our view it will be weakened because of proposals on the floor that are currently outside the parameters of this bill.

Let me deal with a few of the issues that have been raised after my previous speech. One of those issues concerns the word “xenophobia”. Somebody was giving me a lecture about the dairy industry not being able to eat all its cheese and having to export. Well, that is precisely what the proponents of the cooperative structure in the early days of the dairy industry understood immediately—that this was all about exporting. It was all about excellence, and it was all about marketing. The farmers of the day hired people to do all those things, and they did them successfully. I might say that they were not afraid to pay them. Right from the earliest days the salaries in the dairy industry, outside of the farming operation itself, have been very, very good, and the expertise has been at the leading edge of innovation in our country.

The people who set the industry up knew that we had to export. We had to get into new products, and we had to innovate. They did all those things through retained earnings and through borrowings, to the degree that Fonterra now has a credit rating that has slipped since the announcement that it may list on the stock exchange, but that is still second only to that of the Government. Fonterra does not have a credit rating of some third-tier meat company, or whatever, but one that is second only to that of the Government. Those people went after innovation at a rate seen nowhere else in our economy, and it has been really, really successful.

So rather than looking backwards—and I note the talk of Rip Van Winkle and xenophobia—this is an outward looking industry that has always been at the forefront of innovation. This is an industry that is modern. This is an industry that has not gone to other places and begged. This industry has looked after itself. It has been a leading-edge industry, and I have been a proponent of it since my earliest days.

NANDOR TANCZOS (Green) Link to this

I will begin by indicating that the Green Party is supporting this bill through its third reading, as I think all other parties in the House are. I simply say that this is a sensible bill. As has been said, it continues the process of dairy industry restructuring that has been going on for some time. It opens access and increases flexibility, and we support it for all those reasons.

I think Mr Hide was right in saying that innovation tends to come from smaller operators who come up with those innovations—before, of course, they are munched by the big operators who have the economic might in the marketplace. That is why the Green Party says that we are pro-business but we are anti-corporatism. In particular, we are against corporate welfarism, which is something we continue to see with the environmental subsidy going to a number of big businesses.

I also wish to make just a brief comment on the issue of the context of the broader Fonterra restructuring, which Mr Woolerton has spoken about very eloquently. The Green Party has also expressed concerns around the proposals. We see this as an inexorable process towards the overseas control of Fonterra and the end of the interests of New Zealand dairy farmers being at the heart of the company. We are aware that there are a number of safety mechanisms within the proposals, but we see them as delaying rather than stopping that process, so we do have concerns about those things.

A lot has been said about the bill itself and the access to those markets, and I think there has been a good discussion. I thought it would be useful to take a slightly broader view, because there is always great interest in the dairy industry across the nation and in Parliament. As I think Eric Roy in particular said, what affects the dairy industry affects the New Zealand economy as a whole. So there is always broad interest in these things.

I was interested in the dispute between Mr David Carter and Mr Woolerton in relation to the role of John Luxton and Wyatt Creech, whom Mr Woolerton alleged were setting up a cheese factory while preparing this legislation. Mr Carter made comments in reply but I was not here when they were here so I do not know about the ins and outs of that matter. But I do note something quite interesting in Speakers’ Rulings. Speaker’s ruling 71/2 talks about declaring financial interests. It states: “A farmer member does not have a financial interest in a bill to provide for the payment for and marketing of dairy produce.” I thought that was quite interesting when I came across it, because it kind of indicates another standard for farmers in the of the House itself. It is interesting because it seems to be the same across a number of issues in relation to farmers.

There have been big payouts to farmers recently and there are flows to the economy from that. Of course, the payouts to farmers flow to the economy for good and for bad. In the past there have been a number of calls for land use diversification, because when those payouts go down the whole economy is vulnerable. By increasing land use diversification we increase the resilience of the New Zealand economy. That has happened at times when there have been lulls in those prices. A booming wine industry is one example of a focus on diversification and on other ways of producing value from our land. For example, there has been the increase in forestry, although that has been moving backwards in recent times. There is a concern that the big payouts are reversing that trend and moving towards a conversion of large amounts of land into dairying, and there is a kind of monoculture spreading across the New Zealand landscape. I think someone described it as a geological shift in land use.

It is also interesting that much conversion is not on the basis of the payout per se, but on the capital gain to be made from the conversion. This is particularly so as access to water becomes more of an issue. Of course, there is increasing tension in this country and around the world in terms of access to clean water, and that will be an increasing issue for the rest of this century.

There has been massive expansion and intensification of dairy farming, sometimes in areas that are entirely inappropriate for dairy farming, and this is something that the Green Party is seriously worried about. I note the comments made by Environment Waikato’s Dr Peter Singleton, who said that the issues of dairying and water quality are urgent and critical, and that the only hope is through regulation. That comment was made in the context of Federated Farmers running a massive campaign to gut the Resource Management Act—side by side with the National Party, I might add—and to remove all environmental restrictions on farming activity. This is of enormous concern. In fact, Charlie Pederson said that Federated Farmers could not accept any constraint on the continued growth of dairy farming. I have to wonder whether he is including the laws of physics in that, because the reality is that we are starting to hit the environmental constraints, and no business can continue to expand indefinitely exponentially when confronted with environmental limits.

Let us be clear that the Green Party does want what is best for New Zealand farmers. We recognise the enormous economic importance of farming, and we recognise the communities that are built around farming, as well. We have opposed vigorously the closing of rural services—for example, schools—because we see the importance of those things. But we also continue to assert environmental accountability from farmers as we would from any other business. We recognise that the environment was not a big issue in the past. Many farming practices were developed at a time when environmental accountability was not really a matter of debate. No one was talking about it.

We also recognise that there is a natural stewardship in farmers. Farmers live on the land; they are obviously concerned with the sustainability of their farming operations, particularly family farmers, people who may have got their farms from their ancestors and who want to pass them on to their descendants. In that context we also note the increasing extent of corporate farming, where those social and family constraints are not as apparent. Of course, that is not always true, and being a family farmer does not necessarily mean one is a sustainable farmer, but I think there is an intrinsic interest among family farmers to look at questions of sustainability. That influence is now perhaps becoming less important in the farming sector.

We acknowledge that there has been a huge amount of progress in the farming sector. We have seen the growth in, for example, nutrient budgeting, which is an important mechanism for increasing sustainability and reducing environmental impact at the same time as increasing profitability in farming. We are seeing increasing riparian protection, and effluent management has become a lot better, but we have to acknowledge that many farmers are still not participating. We are saying that farmers’ representative organisations like Federated Farmers should be spending their energy supporting the change leaders in these areas, rather than continually defending the laggards.

The reality is that even with best-practice farming, simply as a result of the massive intensification and expansion of dairy farming, we will see a decline in water quality in this country. The point is that this is a challenge for all New Zealanders, not just farmers. We need to move beyond the rural-urban divide, and we need to move beyond seeing this as a farmer versus a greenie thing, and actually start to work together. I know that some farmers feel like they are getting the bash from environmentalists all the time, but we need to work together on these huge challenges.

TARIANA TURIA (Co-Leader—Māori Party) Link to this

It is good to be able to speak to legislation on which—an unusual occurrence—we generally all agree. That is pretty good, actually. When Samuel Marsden arrived in the Bay of Islands in 1814 with two cattle and a bull, he probably had no idea that less than two centuries later the dairy sector would constitute New Zealand’s biggest industry, injecting some $8 billion into the economy and constituting some 20 percent of all our exports. As the good reverend set about training Māori in British farming and gardening techniques, believing that those would pave the way to the adoption of Christianity, he would have been amazed at the dividends that such skills would pay off in 2007, for the Māori dairy sector now owns over 100,000,000 dairy shares, and Māori also represent over 15 percent of all sheep and beef interests in Aotearoa. That is the context in which the Dairy Industry Restructuring Amendment Bill (No 2) is being read.

The bill allows the Fonterra Cooperative Group to have the right to keep exporting to designated markets, and also allows for other dairy processors to become eligible to hold export licences. The bill consolidates the position of New Zealand in the global marketplace once more, after the expiry date of the dairy quota markets established under the Dairy Industry Restructuring Act 2001. This opportunity to again secure a welcome mat in external markets is a move that the submitters and the Primary Production Committee endorsed, and it is a move that we in the Māori Party also fully embrace.

We see that the allocation of export rights to dairy quota markets to a wider group than Fonterra is consistent with kotahitanga, the principle of unity and purpose of direction. Allowing for greater participation and certainty in the dairy industry is a more inclusive approach, which should bring with it a wider support base amongst the industry. Public feedback supports that claim. The submission from the Tātua Cooperative Dairy Co. Ltd, which is based in Tātuanui, outside Morrinsville, supported the bill as finally enacting the goals of the Dairy Industry Restructuring Act: to maximise economic benefits for our country arising from tariff quotas as maintained by foreign Governments.

In that regard we know that Māori dairy farmers are ready and willing to take on the world. They want to be poised to benefit from the widened eligibility for export rights that will be put in place by this legislation. Just how ready they are is able to be gauged from a project that is currently collecting physical, financial, and environmental data from 45 properties in the Tai Tokerau, Te Arawa, Taranaki, and Ikaroa Rāwhiti regions. I am pleased to share with the House that the Māori dairy farmers of New Zealand have a project supported by the Ministry of Agriculture and Forestry that benchmarks Māori dairy farm physical, financial, and environmental performance. The data will be collected for three seasons, to balance the effects of climate, from across the four North Island regions. The farms will be benchmarked for their physical and financial performance, as well as receiving overseer assessments for environmental sustainability. The farms reflect varying ownership structures, from sharemilker to owner-operated to Māori incorporation - owned and governed farms.

We are hopeful that through that project, Māori farming authorities—incorporations and trusts—will be able to realise the benefit of meaningful management and monitoring information in order to support their future progress and development. The Māori Party welcomes the advancing of projects such as that one, as they will lead to a strong platform from which to enter designated dairy markets that operate country-specific tariff quotas for New Zealand products.

The bill will also provide future certainty to the industry, and given that the Livestock Improvement Corporation advises us the New Zealand dairy industry enjoyed, in 2006-07, its most productive season on record, such certainty is clearly a bonus. Just to put some context around all of this, I tell members that we are talking about 11,630 dairy herds and a population of 3,917,000 cows, which is an increase of 84,000 just in the least year.

But we do note that the changes will not be without controversy, particularly associated with Fonterra. It appears that Fonterra strongly opposes removing export restrictions for Japan in the cheese market, and for those parts of the United States designated markets without provision for designated imports. It believes that removing the restriction risks a significant loss of value to the New Zealand dairy industry and economy over time.

Meanwhile, other players, such as the Tātua Cooperative Dairy Co., have a completely opposite view to that of Fonterra, suggesting that the key thrust behind the Dairy Industry Restructuring Act of maximising the economic benefits for New Zealand arising from tariff quotas will be better achieved by the removal of export restrictions, thereby allowing other companies to expand and increase their performance. In such a view, the removal of export restrictions for cheese exports to Japan is therefore desirable.

We know that Fonterra held a round of five meetings with all of its Māori shareholders in the last week of November, so we are hopeful that if Māori had a view about the maintenance of tariff quotas, it would have been raised in those hui. We are all awaiting, too, the results of those hui, as we are keen to hear from whānau their thoughts on the selling-off of Fonterra shares to the overseas market.

The Māori Party has always believed that farmers must keep control of the dairy industry, and as such the proposal to sell off interests to external markets leaves us with considerable room for concern. It is the farmers, who own the shares now and who have put their hard work into the production of milk and the tilling of the land, who require our support. We would be concerned if overseas investors took control over an industry that is so crucial to the future prosperity of this country. So although we support the general intentions of this bill to open up the market, which will allow for greater participation and certainty in the dairy industry, we are, if you like, alert to the possibility of the inevitable issues around control that come when overseas investors raise interest in our land. Nā reira, tēnā koutou.

NATHAN GUY (National) Link to this

I wish to thank that member, Tariana Turia, for her contribution on the Dairy Industry Restructuring Amendment Bill (No 2). I enjoyed listening to the very sound debating points she put in front of the House today. This is a very important bill for the cornerstone of New Zealand agriculture. I have also enjoyed hearing the debates from the Green Party and, in particular, New Zealand First, because I want to take up the challenge from New Zealand First around what Mr Woolerton has been talking about in terms of Fonterra looking to the future around its capital structure regime. Mr Woolerton has spoken two or three times today, and it seems that during his addresses, he has been all over the park. On the one hand he has been saying that we do not want Fonterra to look offshore to overseas investors or even to internal New Zealand investors, and on the other hand he is saying we support competition. I believe that this bill will allow greater competition in the New Zealand dairy industry. Where Fonterra in the past has probably had a monopoly on some of these overseas markets, this legislation will let the smaller players—

RODNEY HIDE (Leader—ACT) Link to this

I rise to support the Dairy Industry Restructuring Amendment Bill (No 2). The ACT Party is in favour of competition and choice, and it is in favour of opening up opportunities to our dairy farmers. We support this bill in its third reading.