DIRA changes don’t go far enough — Fonterra

The co-op is happy with some amendments proposed to the Dairy Industry Restructuring Act 2001 (DIRA) and its regulations. But it says the Ministry of Primary Industries is not taking the opportunity to make broader changes to the regulations.

Fonterra welcomes MPI's recommendation to amend the open entry provisions so that the co-op need no longer collect milk from new dairy conversions.

But the group director cooperative affairs, Miles Hurrell, says this doesn't address the full issue.

"The requirement to accept all milk acts as a disincentive to Fonterra to invest in the right kind of assets and undermines the industry's ability to grow value add business and maximise returns to New Zealand farmers, as we are all committed to do," Hurrell says.

The Government is proposing only that Fonterra no longer has to collect milk from new dairy conversions.

"This is a step in the right direction, but doesn't address the full issue of being required to take milk from all comers, even when it doesn't make commercial sense to do so," says Hurrell. "We will engage with MPI and the Government on these important issues over the next few weeks."

MPI released its discussion document on DIRA regulations in response to the Commerce Commission's report on the NZ dairy industry.

During the review process so far, Fonterra has indicated that the dairy industry has changed significantly since DIRA was introduced in 2001, with many new competitors, much more competition and a robust and transparent milk price regime.

Fonterra says DIRA needs to evolve so the industry and the co-op can create more value for NZ and its dairy farmers.

Fonterra sees positive aspects in the discussion document, says Hurrell.

"In particular, we welcome the proposal that we no longer be required to sell milk to large processors who predominantly export their products. We're also pleased to see the proposal that remaining processors [will obtain] less of our milk in coming years."

"However we are surprised the Government has not taken the opportunity to make broader changes to the legislation."

MPI minister Nathan Guy says as the industry progresses towards deregulation the review progressively builds on changes made in 2012. From that time Fonterra has no longer been required to sell milk at a regulated price to large, export-focused processors, and the volumes of regulated milk available to all other processors have been gradually reduced. As a result, five large independent processors became ineligible for DIRA milk from June this year.

Guy says Fonterra farmers can continue to sell 20% of their milk to other processors such as artisan cheese makers.

Submissions close June 30. Guy is encouraging all interested parties to have their say on the legislation. Public meetings will be held this month.

MPI's preferred options

· Amending the Dairy Industry Restructuring Act (Raw Milk) Regulations 2012 so that Fonterra no longer needs to sell milk at a regulated price to large, export-focused processors, and the volumes of regulated milk available to all other processors are gradually reduced.

· Amending the open entry provisions so that Fonterra no longer has to collect milk from new dairy conversions.

· Amending the sunset provisions so that the next competition review occurs in five years or if independent processors achieve a 25% market share in the North or South Island.