Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
In its submission to the Government’s review of the Dairy Industry Restructuring Act (DIRA), the co-op is calling for a modernisation of some aspects of the regulations.
The co-op’s submission was submitted to Ministry of Primary Industries on February 8; a public version of the submission was released yesterday.
Fonterra's first preference is a total repeal of the open entry provisions of DIRA.
Under DIRA Fonterra has a statutory obligation to be an open cooperative that accepts all milk supply offered by any dairy farmer in New Zealand provided he or she holds proportionate share s in the co-op.
As a second preference, Fonterra says it supports the removal of open entry and the non-discrimination rule in any region where its market share drops below 75%.
“Our third preference is for an exception to open entry and the non-discrimination rule for new conversions and applications we consider unlikely to comply with our terms of supply.”
Fonterra says open entry has helped bring about the vibrant and competitive dairy sector NZ has today.
In this respect, DIRA has done its job, it says.
“It seems it is also no longer being relied upon to the same extent it might once have been.
“Removal of open entry would help our cooperative achieve our vision and control our strategic direction. Decisions on whether to build new manufacturing sites need to be based on the real world; not because a company is getting a leg up at the expense of farmers and their families.”
Fonterra says the downsides of open entry should not be under-estimated, particularly for the environment, and sustainability more generally, and the risk of industrywide over-capacity.
“Strong healthy local environments and communities are the foundation for sustainable, profitable dairy farming and removal of open entry would better enable our cooperative to be a leader on the environment,” it says.
Fonterra also wants an end to rival processors having access to the co-op’s regulated milk.
Fonterra says it wants DIRA regulated milk provision to exclude large, export-focused processors, being processors that either source 30m litres/year of their own raw milk or have capacity to process more than 30m litres/year, and export 20% or more of their processed volume.
Submissions on the DIRA review closed on February 8.
