The Government has announced the first changes in 17 years to the law surrounding the dairy industry.
While it is going to continue to allow farmers open entry to supply Fonterra, it is also going to allow the dairy giant to refuse milk from “dirty” farmers.
Federated Farmers welcomed some provisions of the proposed legislation, though was disappointed open entry remains unchanged – “We thought the sector was mature enough for Fonterra to be given some discretion over who to pick up milk from,” said dairy spokesman Chris Lewis.
Fonterra said it represented a missed opportunity to better support New Zealand.
Agriculture Minister Damien O’Connor said the new law would allow Fonterra to refuse milk supply from farmers in circumstances where milk is not compliant or unlikely to comply with Fonterra’s terms and standards of supply or is supplied from newly converted dairy farms.
Fonterra’s terms of supply would be able to relate to matters including environmental, animal welfare, climate change and other sustainability standards.
The DIRA – the Dairy Industry Restructuring Act – will be reviewed on a 4–6 yearly basis, to provide regulatory certainty.
Other changes proposed include:
* Limit Fonterra’s discretion in regard to setting a key assumption in calculating the base milk price.
* Require Fonterra to appoint one member of its milk price panel on the nomination of the Minister of Agriculture.
* Remove the requirement for Fonterra to supply regulated milk to independent processors with their own supply of 30 million litres or more in a single season.
* Update the terms on which Fonterra supplies regulated milk to Goodman Fielder for the benefit of domestic consumers.
Lewis said the “devil will be in the detail”, such as what the definition of a new conversion will be.
“We’re pleased that DIRA is to have more clarity on when Fonterra can refuse supply as there are some very poor farmers who have demonstrated their unwillingness to come up to the standard of all the other shareholder/suppliers out there.”
Fonterra chairman John Monaghan acknowledged the “tweaks” being given to the rules under which Fonterra has to give its farmers’ milk at cost price to foreign-backed competitors such as Goodman Fielder.
“Given the significant increase in competition within the New Zealand dairy industry, we’re disappointed the Government did not recommend removing the requirement for us to supply our farmers’ milk to large, export-focused businesses altogether,” Monaghan said.
“We welcome the Government’s decision to give Fonterra the right to refuse membership to our co-op where a farm is unlikely to comply with our terms of supply, or where the farm is a new conversion. These changes will support our co-op’s ability to meet our customers’ demands and continue leading the industry toward a sustainable future for our farmers and the rural communities in which they live and farm.”
A member of the Fonterra Shareholders’ Council, John Stevenson, said farmers would be disappointed there would be more regulation over how Fonterra sets its milk price, and they would also be frustrated about a lack of a pathway to deregulation.
“But it’s positive that Fonterra will be able refuse to take milk from farmers who don’t meet their standards.”
Fonterra said it supported greater pricing transparency across the industry and noted “with interest” the Government’s decision that the Minister of Agriculture will be able to nominate one person to sit on the milk price panel.
It said transparency should be required of all processors to publish the average price they pay to farmers, the key parameters of their milk price and examples showing the payout that would be received for different parameters.
A bill to enact the changes will soon be introduced into Parliament, where it will be sent to a select committee for submissions.