DIRA has done its dash

In its submission to the DIRA review, the Fonterra Shareholders Council says it’s time move forward with “a new Dairy Industry Act”.

“The status quo will not suffice. The New Zealand dairy industry no longer needs a ‘Restructuring’ Act - or an Act that focuses on Fonterra alone, if the Government is looking to shape the entire industry for the future,” the council says.

The submission, signed by council chairman Duncan Coull, wants the open entry provisions of DIRA to go.

It also wants an end to access to regulated milk by export processors. Goodman Fielder should not be entitled to regulated price milk for its export products and there needs to be a clear pathway to de-regulation, the council says.

Fonterra farmers point out that DIRA enabled New Zealand’s dairy industry to evolve by facilitating the merger of Kiwi Cooperative Dairies and NZ Dairy Group. 

“That, together with the end of statutory control of export marketing by the NZ Dairy Board, has contributed to a competitive domestic market and has enabled the merged entity (Fonterra) to compete strongly in international markets and as a result make a significant contribution to the economy. 

“In 2019 a majority of NZ’s dairy farmers have choices as to who they supply their milk to and the public has wide choice in the dairy products they buy. 

“It is imperative to now refresh DIRA’s purpose, recognising the current environment but with the future top of mind.”

They want the industry to focus on the future. 

The global environment is changing at a rapid pace and is impacted by a wide range of factors; domestic environment also is vastly different from 2001. 

What hasn’t changed is that sustainable dairy farming has a critical role to play in NZ’s future prosperity and economic and social wellbeing. 

The council says DIRA needs to evolve in response to changes in the domestic market, where milk volumes have plateaued; limited land remains that is suitable for conversion to environmentally sustainable dairying and competing processors have emerged in number since 2001.

 Processors compete vigorously for farmers’ milk in Waikato, Canterbury and Southland – Fonterra is not dominant; and a marked reduction has occurred in Fonterra’s national market share.

There is also significant risk of industry over-capacity, and regions increasingly rely on the dairy industry for its economic and social contribution.

The council warns that if over-capacity led to plant closures the impact on some regional communities would be hefty. 

A Ministry of Primary Industries discussion document on DIRA notes flattening milk supply growth and anticipates more intense competition for farmers’ milk. 

The council says the dairy industry is now in a new phase. “There is an existing footprint of stainless steel processing capacity with limited potential to grow the raw milk pool to flow through [the plant].

“More inefficient capacity [through additional new entrants] will lead to heightened risk of stranded assets, to the detriment of the entire industry and [the NZ] economy; this could [adversely affect] rural communities with lower milk volumes and / or older, smaller processing facilities.”

Status quo not good

Fonterra farmers say DIRA incentivises inefficient entry by large processors. 

“Whilst establishing a plant requires capital and long-term investment, and businesses seek to generate sufficient returns to recoup that investment, the reality is that the majority of processors are backed by foreign capital and large global businesses,” the council says.

The farmers say it’s time to shift the narrative and focus away from today and the past, from Fonterra alone and its dominance, to the wider industry, the future and value creation for New Zealand – “for our people, communities, land and economy”. 

“The status quo will not suffice; DIRA needs to become a dairy industry Act. When considering the options for change, the council encourages MPI and the Government to be ‘NZ Inc’ focused, to ensure NZ reaps the rewards of its dairy industry; and be future focused: don’t be constrained by what exists today, anticipate future trends and advancements.”