Change, growth good if managed well – Feds

He was commenting on the provision in the Dairy Industry Restructuring Amendment Bill that, if passed, will allow Fonterra discretion to accept applications to become shareholders from owners of new dairy conversions from 2018-19.

Hoggard says this doesn’t mean Fonterra has to refuse new conversions. But in Canterbury a decade ago many conversions came on stream quickly and the co-op had to play catch-up building factories.

“If they had been able to manage that, it probably would have been a lot easier to handle,” he says.

“But there probably will not be many more conversions anyway. Most conversions that would have happened, have happened. There is probably still land out there that can be converted but at least this way, if there is someone wanting to convert and there is spare capacity and Fonterra is able to do it, then they can agree they can join.

“Or they could say ‘in this area our factories are at full capacity; we are planning to upgrade so you can join in two years when the upgrade is done’.

“My personal view and the view of most farmers I have talked to is that change is beneficial.”

Primary Industries Minister Nathan Guy says about 100 submissions were received on the Government’s proposals to amend DIRA, split between those who want further deregulation of Fonterra and those who say Fonterra is still in a dominant position.

“Having considered these submissions, the bill will introduce a number of changes to the DIRA regulatory regime,” Guy says.

The changes:

- Retain the DIRA regime for the time being, by preventing it from expiring

- Require a review of the need for the DIRA legislation during 2020-21

    

- Allow Fonterra discretion to accept applications to become shareholders from new dairy conversions from 2018-19

- Make other technical changes unrelated to the review of the state of competition.

The government also agreed to alter eligibility to buy regulated milk from Fonterra, and the terms on which Fonterra has to supply it. This means Fonterra will no longer be required to sell regulated milk to large, export-focused processors from the start of the 2019-20 season.

All processors buying regulated milk will also have reduced flexibility in forecasting the volume of regulated milk they intend to buy from Fonterra from the start of the 2018-19 season.

“These changes are to regulations which will be amended through the standard process, in parallel with the bill going through parliament. I expect a range of views will be expressed during the select committee process,” says Guy.

“The consultative process provided new information about risks of some of the originally proposed changes to regulated milk, particularly for downstream markets and consumers.

“The government is therefore deferring the consideration of those potential changes to regulated milk for Goodman Fielder and small or domestically focused processors.

“Officials have started work to understand the complexities in this area and any outcomes will inform the next review.

“The next review will commence in the 2020-21 season -- 20 years since DIRA was created. The scope of this review will be wider than just competition policy, to take into account impacts from the work on downstream milk markets.”