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A Bill which oversees Fonterra's farm gate milk price setting and "aims to deliver a more transparent and efficient dairy market" according to Prime Industries Minister David Carter, passed its first reading in Parliament yesterday.
Federated Farmers Dairy chairman Willy Leferink says the Dairy Industry Restructuring Bill (DIRA) is "arguably the most significant economic legislation to come before this Parliament".
"Having heard the debate, it shows there will be robust discussion about the DIRA," he says.
Carter told Parliament that because of Fonterra's dominance, its farm gate milk price is effectively the default price that all dairy processors in New Zealand must pay to attract supply from farmers.
The bill would oversee Fonterra setting the price it pays its farmers, ensuring a competitive and innovative dairy industry, Carter said.
"This Bill legislates for greater transparency of the way Fonterra currently sets its farm gate milk price through its milk price manual. It does not directly intervene in Fonterra's milk price setting processes."
The Bill also includes changes that allow Fonterra to move to its proposed Trading Among Farmers (TAF) system, should it choose to – a decision that ultimately sits with Fonterra not the Government.
"Under TAF, a farmer wanting to purchase or sell Fonterra shares would trade in a market rather than transacting directly with Fonterra, as is currently the case. In addition, an external fund will be established and farmers will be able to sell a portion of their shares in exchange for cash, with the investor then getting dividends and any change in value."
However, Fonterra will remain 100% farmer supplier-owned, as voting will stay with the farmer supplier, Carter told Parliament.
The Bill has been sent to the Primary Production select committee for public submissions.
Leferink said Federated Farmers looks forward to representing farmers through the select committee process.
"In many ways, we'll be discovering key information as the Select Committee process unfolds.
"That's why we are concerned to see the Select Committee process truncated to meet Fonterra's Trading Among Farmers (TAF) timetable. There are also some big fishhooks that we want to see resolved.
"Farmers like me voted for the principle of a shareholders fund, but that was two years ago and was based on a concept. We also thought it was tied to the cooperative's constitution and not the DIRA itself.
"Federated Farmers strongly believes farmer-shareholders must have a clear understanding of the value proposition involved.
"Over the next few months, Federated Farmers will work hard in the time allotted to consult our members and prepare high quality submissions.
"We need to reiterate that farmer-shareholders are the real stakeholders here. Legislation must not lead Fonterra's capital restructure and its shareholders must be left to determine the process without interference," Leferink concluded.
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