Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill

Hon Dr NICK SMITH (Acting Minister of Agriculture) Link to this

I move, That the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill be now read a second time. The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill was tabled in the House in October 2009. It had its first reading on 28 October 2009, after which it was referred to the Primary Production Committee for consideration. The committee received and considered 11 written submissions and heard nine oral submissions on the bill.

This bill improves on the Dairy Industry Restructuring Act 2001 by providing more flexibility in the pricing and allocation of regulated raw milk, both now and in the future. The Dairy Industry Restructuring Act 2001 permits the Minister of Agriculture to make regulations that require Fonterra to sell up to 5 percent of its milk supply to independent dairy processors. The Dairy Industry Restructuring (Raw Milk) Regulations 2001 currently require Fonterra to supply up to 600 million litres of raw milk to independent processors, at a price determined by a formula in the regulations. The formula was originally required because of the historical industry practice of bundling milk and capital returns into a simple payout for farmers. The industry has since moved on, and Fonterra now provides a distinct milk price that is separated from capital returns. It is now time for the regulations to move on, too, and adopt a more modern approach to pricing.

Upon the passing of the bill, I will replace the old formula with the Fonterra farm-gate milk price plus 10c per kilogram of milksolids. The Fonterra farm-gate price represents the average price Fonterra pays farmers for raw milk across the season. The additional 10c per kilogram of milksolids represents some of the additional costs to Fonterra of providing independent processors with an even quantity of milk through the season. An even supply is more valuable than the seasonal or bell-shaped supply that Fonterra receives from its farmers. The new price will apply from 1 June 2010, which is the start of the 2010-11 dairy season. The new price will remove the immediate mispricing of raw milk that was identified during the 2008 review of the regulations.

Some submitters on the bill raised objections to the new pricing system, as they were concerned about the impact of a price increase on their business. Although this objection can be expected, the change is needed to ensure that the independent dairy processors that buy milk under the regulations will pay the same price that Fonterra pays its farmers for the supply of that milk. The new price will provide independent dairy processors with improved economic incentives to source milk directly from farmers, where practicable, rather than under the regulations. By promoting contestability in the market for farmers’ milk, this new price will better reflect the purpose of the Dairy Industry Restructuring Act to promote the efficient operation of dairy markets in New Zealand.

The bill also allows for regulated raw milk to be allocated through an auction system or any other method. This future-proofs the Act by providing extra flexibility in the way that regulated milk is allocated to independent processors. Developing a system for managing excess demand for regulated milk will become increasingly important over the next three to four seasons, as the dairy industry is becoming increasingly diversified and the number of independent dairy processors has increased. An auction would provide one method for efficiently allocating regulated milk amongst competing processor demands, and is one possible long-term solution to regulated milk pricing. Submitters on the bill raised concerns about, mainly, the design features of an auction system. These features would be critical to ensuring that an auction system produced efficient prices and resulted in an efficient allocation of milk. If an auction system is to be introduced in the future, the Ministry of Agriculture and Forestry will further consult the industry on the appropriate auction design features.

The Ministry of Agriculture and Forestry is currently reviewing the longevity of the entire pro-competition regime that regulates Fonterra. The review is looking at the regulatory regime to see that it remains fit for purpose, given the evolution of the structure of the dairy industry since 2001, and therefore should be continued for longer than currently planned. If the review finds that the raw milk regulations should be extended into the future, then it may become necessary to introduce another mechanism for ensuring that regulated milk is both priced efficiently and allocated to those it was designed to protect, without discouraging important contestability in the market for farmers’ milk.

The flexibility provided by this bill means that a number of policy options, including an auction system, will now be readily available through amendments to the regulations only. The bill also includes a provision to allow our external documents to be incorporated by reference in any regulation made under the Dairy Industry Restructuring Act. The Primary Production Committee has recommended amendments to the incorporation by reference clauses in the bill, in order to ensure that these are consistent with current standards. I support these recommendations.

This bill is about a more modern and flexible regulatory framework for pricing and allocating regulated raw milk. By promoting contestability in the market for farmers’ milk, this bill builds on the purpose of the Dairy Industry Restructuring Act to provide for the efficient operation of the all-important dairy industry and its markets in New Zealand. I particularly thank the members of the Primary Production Committee for the hard work and effort that has gone into this bill. I think that the Primary Production Committee is respected as one of this Parliament’s most effective committees for our most important agricultural industries, and I thank the committee for the work that has gone into the report that was tabled on 22 February. I commend this bill to the House.

Hon JIM ANDERTON (Leader—Progressive) Link to this

Since 2001 the Minister of Agriculture has been able to require Fonterra to supply up to 5 percent of its milk supply to independent processors at a regulated price. This was brought about by the formation of Fonterra and the need to protect independent processors in competition with it. At the time, Fonterra might have been inclined—and there were signs that it was—to overprice those supplies to independent suppliers. A regulated price was brought in to ensure that independent processors got milk supply and got it at a reasonable price. In fact, the supply of milk to independent processors tended to be underpriced, if anything, and the cost to Fonterra and, therefore, to the dairy farmers who supplied it was somewhere between $5 million and $17 million a year, depending on the farm-gate price that Fonterra paid at the time.

In addition, the value of an underpriced milk supply to some independent processors was further enhanced by their ability to take advantage of the flexibility to increase or decrease the quantity of raw milk that they purchased through the season, which was a flexibility that Fonterra itself did not enjoy. It had to take all milk delivered to it, whenever it was delivered, and pay for it. Fonterra, not to weep too much on its behalf, had received a very significant benefit from the original merger, which took place due to the Commerce Act being suspended by the then Labour-led Government. But it would be unfair if suppliers to Fonterra paid an unfair subsidy to the competitors of Fonterra, which, in the event, proved to be the case.

This Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides some balance and certainty to that situation. It permits regulations to be made that replace the current wholesale milk price formula with the Fonterra farm-gate price, plus a seasonal margin of 10c per kilogram of milksolids, from the 2010-11 dairy season onwards. It also allows for raw milk to be allocated through an auction process in the future. This will mean that a framework and a system will exist to manage excess demand for regulated raw milk by independent processors, and therefore manage the transition risk associated with the approaching end to Fonterra’s statutory obligation to supply regulated raw milk, which runs out very soon—thus there is some urgency about this bill.

The previous Labour Government had intended that the auction should start in the 2009-10 season. The auction was to allow for excess demand to be priced rather than regulated through quantity of supply. The price mechanism would also have a component that would guarantee supply to small processors, so all elements of the dairy industry were taken into account. For a variety of reasons this option ran out, and the first auction will now take place in the 2010-11 dairy season. This change has created considerable uncertainty for the dairy industry, and it is very desirable that that uncertainty is ended as quickly as possible so that informed investment decisions can be made for the 2010-11 season.

The option that this bill supports will mean there is a fair and efficient price, any excess demand is managed efficiently, uncertainty in the industry is removed, and there is a stepping stone provided to introduce an auction system. It will also mean there is no incentive for Fonterra to manipulate its wholesale price, because to do so would mean that it would have to overpay all of its farmers—not just the 4 percent who are being supplied as independent processors but the other 96 percent of Fonterra’s suppliers. That is not economically credible or viable for Fonterra to do, so any temptation it might have had to overprice will be dampened somewhat by the cost of any such action. I think that is rather a neat solution to what could have been a significant problem.

Replacing the current regulated price formula—that is, the wholesale price of milk—with the Fonterra farm-gate price, plus 10c per kilogram of milksolids from 2010-11, requires amendments to the original Dairy Industry Restructuring Act. The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides for those amendments. I support its second reading and its progress through the House. The dairy industry is our major export industry. It is among our most efficient industries. It is highly competitive on world markets. It has been innovative and it has expended a significant amount of New Zealand’s research and development budget to ensure its position as our No. 1 exporter. It well behoves the House to take this bill seriously and expedite it so that all of the measures I have mentioned in the words I have addressed to the House so far can take place in a timely manner.

SHANE ARDERN (National—Taranaki - King Country) Link to this

I rise in support of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. In doing so, and at the beginning of my comments, I declare that I am a shareholder of Fonterra. In accordance with the Standing Orders, I declare that interest.

What we are talking about in this bill, and what two earlier speakers have talked about, is the raw milk regulation under which Fonterra has to provide milk—up to 600 million litres, or up to 5 percent of its total milk production—to its competitors. Those are the small companies, and sometimes not so small companies, that also participate in the international market and in the domestic market in New Zealand. I will mention a figure, and I ask members to take note of it. Fonterra now represents 84 percent of our export milk, not the 93 percent, not the 95 percent, not the 100 percent monopoly, and not the other figures that we often hear about, but 84 percent of our export milk—that is, products made from milk that are exported annually from New Zealand.

The Primary Production Committee, as the Minister said in the first reading debate, considered a number of issues, listened to many submissions, and made some recommendations, which I am pleased to say have been accepted. One of the submissions was from Westland Cooperative Dairy Co., which was one of the companies that were originally involved in the Dairy Board. I guess it was one of the legacy companies, at the beginning of the process, that chose to stay out of the merger that originally formed Fonterra. Westland Cooperative Dairy Co. made an excellent submission, in the sense that it identified the intent of the legislation—the Dairy Industry Restructuring Act 2001—and said the company had been disadvantaged by that Act. That is another side of the argument. The company said that it was disadvantaged because of its location, and that because the company had understood entirely the intent of the raw milk regulation when it was first set up, the company had chosen not to take up its entitlement to collect the 50 million litres of raw milk that it would have been entitled to collect from Fonterra.

As it has turned out, the milk provided by Fonterra to other companies was provided at a subsidised price, and because other companies that export into the same markets as the Westland company chose to take that milk, the Westland company felt that it had been disadvantaged. So its submission was about whether the Act should be extended beyond the point where, of course, the triggers within the Act will be met. Those triggers are a percentage of milk in the South Island that is not going through the Fonterra structure, and a percentage of that milk in the North Island. As previous speakers have said, the South Island trigger is probably about 12 months away from being met and the North Island trigger is 2 or 3 years away from that, on current forecasts. So within 3 years, or maybe 4 years, the current raw milk regulations could expire.

The debate is about whether the triggers in the Act should be extended. The question is what percentage of milk going through Fonterra and into our export markets is acceptable. If 84 percent is still considered to be too high, then what percentage would people be happy with? If we compare that system with the structure of other primary industries, such as our meat and wool industry structures, and if we talk to people involved in those industries, we find they feel that their industries are too fractured. They will potentially come to the Government at some stage and ask for some assistance, somehow or other, to merge companies so that they can get more critical mass into their export structures.

That is the debate in essence. The select committee was happy with the general direction that is being taken, as the Minister said when he announced changing from the raw milk regulation we previously had, in terms of pricing, to the current proposal—that is, it will be the Fonterra farm-gate price plus 10c per litre, to take into account the “shoulder milk” or seasonal supply of milk. I think that is a good step forward. The 10,500 shareholders and farmers who represent Fonterra, and who also represent something like 25 percent of this country’s export earnings, will be happy to hear that that has happened, because there was a subsidy previously. I commend the bill to the House.

Dr RUSSEL NORMAN (Co-Leader—Green) Link to this

I stand to take a brief call on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill on behalf of the Greens. I should also start by making a declaration of interest. I am not a shareholder of Fonterra but I am a fan of Fonterra, even though at times I have been quite critical of some of Fonterra’s water issues. Fonterra is one of our most important companies—in fact, it is by far our most important company. Fonterra is a producers’ cooperative. I think that a lot of New Zealand industry could learn from the cooperation that dairy farmers have shown and the effectiveness of the producers’ cooperative when competing in the global market. However, Shane Ardern’s point is right: the proportion of milk exports that Fonterra controls is now down to 84 percent, and that reflects the changing nature of the dairy industry in New Zealand.

Two different groups in the industry take advantage of the regulations within this bill. One group, which the Greens are very fondly disposed towards, are the small New Zealand producers that further process raw milk and add value to it, whether for the domestic market or the international market. Those smaller New Zealand producers make a very positive contribution towards the New Zealand economy, and we are very supportive of regulations that ensure they get raw milk at a competitive price.

However, another group of much larger producers, which is increasingly foreign-owned, is taking advantage of the raw milk regulations in order to access cheap milk. They have to be subsidised by Fonterra shareholders, and for that reason we certainly support the changes in this legislation that give Fonterra and its shareholders a much fairer price for their milk than under the current arrangements. The current arrangement means that the foreign-owned processors are basically getting a subsidy from New Zealand dairy farmers, and the Green Party thinks that is totally unacceptable. The reason this is particularly pertinent at the moment is, of course, the large foreign interest in buying up the New Zealand dairy sector. That is happening both at the processing level and, increasingly, as we have seen in the most recent applications, in terms of dairy land. It is quite critical that as these large foreign firms look at buying up the New Zealand dairy sector, we provide some protections to Fonterra so it does not find itself having to provide subsidised milk to Chinese Government - backed processing firms so that those companies can export that product back to China.

It is important to note as foreign intervention goes into the New Zealand dairy sector that it is not just any old competition. We should not treat it as just another capitalist company coming into New Zealand. In fact, these companies are often backed by the Chinese Government, which has made it very clear that it expects Chinese companies to buy up agricultural land overseas and has given directions for Chinese companies to do that. When Fonterra finds itself competing with these companies and having to provide them with milk at a regulated price, these are not just regular, everyday, any old companies that are trying to make a profit around the world. These are companies that often have the backing of the Chinese Government, which is of course a totalitarian State. The Chinese Government recently locked up some people from Rio Tinto because the attempt by Chinalco, the big Chinese miner and processor, to buy Rio Tinto was turned down.

It is very important to realise that we are dealing with some very aggressive competitors that are trying to take over the New Zealand dairy sector and take advantage of whatever regulations we have in place. It is quite important that we change the regulatory structure, using this bill, so that a fair price is paid to Fonterra shareholders. I think that we probably need to look a little bit further. In my view it is only fair that we should discriminate between smaller scale New Zealand processors and large-scale foreign processors. I stand to be corrected, but my understanding is that within this bill as it currently stands we do not discriminate between providing milk at a regulated price to small-scale New Zealand producers and large foreign-owned producers.

It seems to me that it is not in New Zealand’s interests to force dairy farmers to provide raw milk at a regulated price to our foreign competitors—often backed by the Chinese Government and others—that are coming into New Zealand in an attempt to undercut the New Zealand dairy sector. Given the dominance of Fonterra within the market, I certainly support providing milk at a regulated price to smaller scale New Zealand producers, but I am not at all supportive of the situation where the dairy farmers of New Zealand should be made to subsidise and support the large foreign multinationals backed by the Chinese Government in their attempts to undermine the New Zealand dairy sector.

Fonterra is a fantastically successful example of cooperation. It is a fantastically successful New Zealand cooperative and company, and it has played an enormously important role in the New Zealand economy. These regulations will continue to help Fonterra to do that job, but I think we need to future-proof these regulations and to look at how we will deal with the continued attack and intervention by large foreign multinationals that are trying to undermine our cooperative.

Hon DAMIEN O’CONNOR (Labour) Link to this

It is an honour to speak on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. This bill has been supported by every member of the Primary Production Committee, and I acknowledge and applaud the chairmanship of Shane Ardern. As he said, he is a farmer and a shareholder in Fonterra. He disclosed that up front, and he has done a really good job.

This legislation is so important because we are dealing with New Zealand’s single biggest industry. The dairy industry produces 25 percent of our exports, and that is not something this House should trifle with. Any change in, or consideration of, the dairy industry that comes before Parliament should be considered very, very carefully. Fonterra is also our only truly multinational company owned by New Zealanders. All the rest of them have large shareholdings offshore or they have bailed out completely. This is one multinational that is owned by New Zealanders for New Zealanders, and it produces 25 percent of our exports.

Fonterra is so successful that it controls almost 40 percent of international tradable products in the dairy industry across the world. That makes it a considerable player in the world of food exports across the globe. It has huge potential, and that is something that we must realise if this country is to go forward. Nokia is to Finland as Fonterra is to New Zealand, and we must keep it that way.

This legislation deals with, at most, 5 percent of the milk produced in this country. However, it is a 5 percent block of milk that is either sold at higher value through domestic consumption or goes into many value-added products. I think Fonterra and its managers and officials should be reminded that they are not the success story; in fact, they have built on the success of the New Zealand Dairy Board and its predecessors in the dairy companies. There are many senior executives who think that they themselves have created this amazing company, but they should be reminded on a regular basis that it has been built through the good work, investment, and wisdom of New Zealand dairy farmers, and they have an obligation to ensure that Fonterra stays in the hands of New Zealand farmers, as well.

It is 5 percent of the milk produced in this country that we are dealing with, and a number of speakers have talked about what we are doing here. Effectively, we are setting up an auction system for the up to 5 percent of milk that was addressed through the original formation of Fonterra to ensure that we had competition on the local market, that dairy farmers were able to enter and exit Fonterra, that there was some balance to the monopoly position that the dairy board was in as the buyer of milk from farmers and the exporter and seller of milk products, that there was not an abuse of that monopoly power, that we had some competition in the domestic market so consumers in New Zealand had fair prices for dairy products, and that farmers were not locked into an organisation that might not pay them a fair price for their milk.

It has been quite a process, and this legislation is an evolution of that domestic supply situation. I have to say that it is a bit late in coming to the House. The National Government, for all its rhetoric in saying that it supports farmers, has mucked around—to use a rural term—on this issue. Mr Ardern knows that. The Minister, David Carter, came in and could not quite grasp the problem. The previous Minister, Jim Anderton, had done a lot of good work. He had got to the point and recommended that an auction system be put in place. It should have been in place for this season, but the Minister came in and hesitated and procrastinated. He did a U-turn, as the National Government has done in a whole lot of areas, and decided that we could not get it in place this season, so we will bring in a new pricing structure.

COLIN KING (National—Kaikōura) Link to this

It is a pleasure to speak in the second reading debate on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. I must acknowledge the experience that is in the Primary Production Committee, both the chair and the previous chair, and also other people within the agricultural industry. The point I want to make—and I will not take too long a call because I think the matter has been canvassed pretty well—is that we listened to submissions, and the submitters were a number of the processors who take milk that is made available under regulation and legislation. There are 600 million litres available. There are 21 processors that take milk. Out of those, 13 take 4 million litres or less, so that is quite a few.

The argument from the submissions really came down to whether there was justification for the principle of a Fonterra farm-gate price, plus 10c per milksolids. It is clear that the evidence came down on the favourable side—that that should be the way it is run. The premium on the farm-gate price is because of the seasonality of milk production. It was important to square up those shoulders. There is a mechanism for an auction system in this bill, and on that basis we look forward to that being progressed at an appropriate time. No doubt the Minister of Agriculture was given sound advice that there needed to be more work done on that. We look forward to that being progressed, and this bill makes that provision. I look forward to the Committee stage of this bill to examine some of the clauses that have been introduced. I take pleasure in commending this bill to the House.

Dr ASHRAF CHOUDHARY (Labour) Link to this

I rise to support the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. In saying so, I am delighted to acknowledge my colleagues in the Primary Production Committee. The select committee is chaired by Shane Ardern and I must say that he does a good job.

SANDRA GOUDIE (National—Coromandel) Link to this

I am delighted to take a call and concur with my colleague across the House, Ashraf Choudhary, that Shane Ardern is an excellent chair of the Primary Production Committee. We all work so well together because we all fully understand the importance of agriculture, and that it is the backbone of New Zealand’s economy.

Although the Dairy Industry Restructuring Act is meeting most of its intended purposes, the 2008 review of regulations found that the regulated price formula was flawed. This formula requires Fonterra to sell raw milk at a lower price than it pays farmers for the supply of raw milk. That was never the intention of the regulations, and we needed to change it. The bill ensures that the price paid by independent processors for raw milk is the average price that Fonterra pays its farmers for the supply of the milk and includes the additional cost to Fonterra of supplying a uniform supply profile to independent processors across the season. I hope members all understood that. This price ensures that Fonterra is fairly compensated for supplying the raw milk. I wanted to take just a short call on that.

BRENDON BURNS (Labour—Christchurch Central) Link to this

As a member of the Primary Production Committee, I am very pleased to take a call on the second reading of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. Labour supports this bill. It flows on from the dairy industry restructuring that we, as a Government, undertook some 9 years ago. I concur with the comments made about the chairing of the select committee by Shane Ardern; he does a good job as chair. Perhaps he should be the Minister of Agriculture, and perhaps Colin King should be the “Minister for Small Grains and Seeds” in support.

The main purpose of this bill is to replace the current regulated pricing formula that independent processors pay to Fonterra for farm-gate prices, and to add a premium of 10c per kilogram of milksolids. I should say at the outset that I do not need to declare a conflict of interest on this issue. Unlike Shane Ardern, I do not have an involvement in the dairy industry, but, I guess, I do have a connection of a kind that I need to declare. My daughter is getting married on Saturday. Her husband-to-be is the son of a dairy farming couple from Northland who have recently retired. They are good people. They are not of my political persuasion, but they were loyal Fonterra suppliers. There is a little irony in all of this. Over a couple of glasses of wine one night after we first met, I remarked that Fonterra was a good socialist organisation, and the parents baulked somewhat at that description. But, as I reminded them, the dairy farming industry was in dire straits in the 1930s because of the activities of the then party in Government, which was the predecessor of National. Mickey Joseph Savage and the Labour Government came in and delivered loans to that industry. They provided guaranteed minimum prices. They supported the expansion of the cooperative system. A good socialist system has seen that industry grow and grow to the point where today it is our biggest single export earner, and that is a great thing to see.

I have to declare my support for Fonterra. It is 100 percent New Zealand - owned, and long may it continue to be so. We would rue the day when there were changes that saw foreign capital flow into Fonterra, because it would start a whole chain of events that would, I think, be potentially cataclysmic for New Zealand. I acknowledge that Fonterra has led the growth in the dairy industry in my region of Canterbury and Southland. That might sound a little curious coming from somebody who is known to hold very, very strong views in terms of issues such as water quality. But whatever issues we have about water quality, certainly in any contact that I have had with Fonterra and its leadership not one person in the senior team has ever been anything other than absolutely committed to improving the current water-quality in my region of Canterbury, and to working with Fonterra’s farmer base to try to lift that quality. If we have a New Zealand - owned entity like Fonterra, I think we have an odds-on chance of getting the balance right, even with regard to the less positive events in the House earlier today. The Dairying and Clean Streams Accord with Fonterra may not be delivering the sort of progress that we want to see, but it is certainly a lot better than nothing. I commend Fonterra for its support.

There is certainly a question as to whether we would see the same sort of commitment if we moved to an industry with a strong and growing profile of foreign investment. It is a valid question to be asked, and I pose it in the House. I believe that the commitment over the generations to New Zealand of the farming cooperative system that Fonterra represents is the sort of commitment that represents outcomes in environmental values as well as the bottom line. I think that is truly important because Fonterra is the jewel in our economic crown. It is our single biggest export earner. It level pegs at times with the tourism industry, one has to acknowledge. Obviously there are some tensions between those two industries that we have to get right. We want to see both do well in respect of our revenues and export income receipts. But I think New Zealanders need to know where the Government will stand on the issue of Fonterra’s capital base. I ask the Government whether it will take a position of following market ideology and whether we will be seeing a public float of Fonterra’s shares. I think that would be a really backward step. The pressure is on. We have seen proposals to float those shares on the sharemarket, which, luckily, the Fonterra stakeholder base has managed to thwart, but the issue will come up again. I think we want to see Fonterra held in New Zealand hands and using its own shareholder base as the way to create some new capital for it.

There has been considerable commentary in the last week about the Chinese company with a billion and a half dollars to spend on the purchase of New Zealand farms and infrastructure. I believe that one of the intended targets for it would be the Synlait company based in Dunsandel, which was set up as one of the offshoots of the dairy restructuring changes that we introduced as a Government back in the early 1990s. I visited Synlait last year, and as somebody with no deep understanding or knowledge of the dairy industry or how it operates, I have to say that I was surprised to see Fonterra tankers pulling in and out of the Synlait plant in Dunsandel as well as Synlait’s trucks, although I think the Fonterra trucks outnumbered them. It was explained to me that that was the basis of the dairy restructuring—Fonterra was obliged to supply milk to Synlait.

We now begin to understand through this bill that the basis of that has been uneven. It has been tilted a little too much in favour of the competition that the Dairy Industry Restructuring Act provided for, and this bill brings back some measure of balance to the equation. Competitors will pay a premium of 10c per kilogram of milksolids to ensure that they are given competitive reasons to provide their own facilities, rather than simply, if you like, milk the tit of the Fonterra machine.

One of the concerns that I have about the future of the industry relates to the Overseas Investment Office. Last year one of the first acts of this Government was to weaken the overseas investment rules. I think that is a concern. We all acknowledge the role that foreign capital has played in the creation of our nation and the role that it continues to play. We are not talking about shutting the gate, but we have to be judicious about the way that we allow foreign investment to flow into this country, as any other nation is. If we were to see further loosening in respect of our dairy industry, then I believe that would be detrimental to New Zealand’s interests. At the moment I think the landscape is tilted in favour of foreign investors anyway, because our monetary policy settings give them interest rate advantages over other domestic New Zealand capital. It brings to mind the call that Labour made about having some reconsideration of current monetary policy settings.

I was interested to hear the comment from Shane Ardern about the percentage of exports that Fonterra now commands—84 percent was the figure he used, I think. That surprised me a little, given that we know Fonterra still holds about 92 percent of the industry in terms of the milk flows. Obviously the Dairy Industry Restructuring Act created competition. It is truly there in place. This bill is trying to make sure that those supplies of raw milk do not continue to give rival companies some sort of competitive edge, and that we have a flow through the season that does not see them given all the benefits of being able to buy through the season at prices that are not available to Fonterra—they obviously enjoy the peak of the season prices.

In conclusion, I note that this bill makes a change to the wholesale milk price. It adds 10c per kilogram of milksolids. I think that is a sensible, solid move towards assisting Fonterra. It is a rebalancing exercise. It is an appropriate way to try to ensure that we maintain this jewel in the crown, to keep it functioning, to keep it producing, and to keep it delivering export receipts for New Zealand. Yes, we want the competition there; it has a place in the market. But we do not want the field tilted in such a way that we give an undue competitive advantage to other organisations, some of whom currently—let us be blunt about it—certainly have more foreign shareholding than Fonterra, we hope, will ever have.

CRAIG FOSS (National—Tukituki) Link to this

The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill is a good bill and I commend it to the House.