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.
Early this year the Government asked for submissions on the Dairy Industry Restructuring (Raw Milk) Amendment Regulations 2012, and today released them in their final form.
Fonterra Chairman-elect John Wilson said the cooperative and farmer shareholders have consistently said the Raw Milk Regulations needed an overhaul for the good of the dairy sector and New Zealand.
"From Fonterra's perspective, the new regulations address one of our key concerns by requiring that Independent Processors must take at least some milk during peak production months, under what's commonly called the 'October Rule'," says Wilson.
"We are pleased that the Government has responded to our concern around the seasonal profile of milk production and the need for the regulations to reflect that reality. The retention of an obligation for Independent Processors to take a minimum amount of their milk in peak months, together with a new system of monthly maximum limits on milk take, is a good step forward.
"Fonterra welcomes competition in the New Zealand dairy industry. For that competition to benefit consumers it must happen at the farmgate. We are pleased that a new three-season limit will see established o independent processors lose access to regulated milk from June 2016," says Wilson.
The Government's July amendment to the Dairy Industry Restructuring Act clarified the rules around who can claim to be an independent processor under the Raw Milk Regulations.
"This amendment was aimed at eliminating the potential for 'gaming' of the regulations by 'virtual' processors that are like shell companies with no visible presence or investment in physical assets," says Wilson. "We trust that the Government will act swiftly if any 'gaming' behaviour occurs in the future to undermine the purpose of these Regulations.
"We would be concerned if any of these changes led to an increase in the volume of Fonterra milk being allocated under the Raw Milk Regulations – but do not believe that is the Government's intent. The legislated limit on the total allocation of Fonterra milk under the Raw Milk Regulations remains at 5% of our total milk supply and this is now reflected in the volume limits set out in the Regulations. We also note the retention of the 50 million litre cap on regulated milk available to an individual processor.
"While there's been some give and take during the process of amending the Raw Milk Regulations, the changes announced today are an overall improvement.
"The regulations preserve two principles that are important to the cooperative and the wider dairy sector. They will promote competition at the farmgate, and ensure that sufficient regulated milk is available for dairy food and beverage companies who process raw milk but do not have their own supply, and for start-ups that genuinely need it," says Wilson.
