Law reform the first priority

New Fonterra chairman John Monaghan will be leading the country’s biggest company at a challenging time for the New Zealand dairy industry.

While the industry faces continuing criticism of its environmental record and challenges from alternative proteins, the most immediate issue is the upcoming review of the Dairy Industry Restructuring Act (DIRA).

The act governs the way in which the industry is regulated.

Monaghan recently wrote of the need for New Zealand’s regulation to evolve in an opinion column for news publisher NZME. He wrote: ‘‘In many respects DIRA still makes sense today. But, like a lot of things, it needs to change because today’s world looks very different to when the legislation was passed 17 years ago.’’

He went on to say: ‘‘DIRA needs modernising if New Zealand wants to shore up the longer-term contribution of the dairy industry to the country.’’

One of the most contentious issues in the act was the issue of open entry where Fonterra had to accept all milk from new suppliers. The co-operative said publicly that this part of the legislation was no longer needed because the dairy industry had become highly competitive.

Monaghan, who could not be reached for comment, was first elected to Fonterra’s board in 2008. Prior to joining, he was chairman of the Fonterra Shareholders’ Council and the inaugural chairman of the cooperative’s governance development programme.

He is also a director of CentrePort Wellington Ltd and CentrePort Properties Ltd.

He holds a number of farming directorships and is a trustee of the Wairarapa Irrigation Trust. He has dairy farming interests in Wairarapa Otago regions.

Fonterra Shareholders’ Council chairman Duncan Coull said the DIRA review would be the most immediate challenge new chairman John Monaghan would face.

Federated Farmers vicepresident and Fonterra supplier Andrew Hoggard said it was hard to know how the DIRA review would play out because there were three different political parties making up the Labour-led Government. ‘‘I’d see some alignment between Labour and NZ First, but previously the Greens [before the election] had some strange views.’’

While there was talk at Fonterra that things needed to change, the key appointment would be the new chief executive.

‘‘That will inform us better as to the direction. There’s been questions recently over capital for investment, do they have enough, what are the challenges with a flat milk supply – so no extra capital is coming in.’’

Waikato University Professor Jacqueline Rowarth, an agribusiness expert, said she found it bizarre Fonterra had not announced a new CEO yet.

‘‘Perhaps they’ll do so at the November director elections. The delay is mysterious; they started the search in November last year and [Theo] Spierings announced his resignation in May. It could be that it shows the complexity of the job.’’

Rowarth said one of the challenges Monaghan faced was disaffected shareholders who did not agree with the co-operative’s offshore investment strategy.

‘‘They see vast amounts being spent offshore and they have no ability to see what the returns are. The returns from offshore companies get grouped in different ways each year so it’s hard to track what’s going on year to year.’’

The co-operative also faced a lack of capital, she said.

‘‘Farmers have invested a lot in Fonterra but it has gone offshore . . . They should be looking at getting into more fresh production of products like UHT milk.

‘‘There are also concerns very few people have been standing up for what farmers have been doing for the environment, trying to point out that it’s really good but we can do better. Where’s the science to tell us what we’re doing is right? People are telling farmers to get rid of supplements, but where’s the value Fonterra can show for an all-grass system? They can’t.’’