Fon­terra sour over milk col­lec­tion rule

Ac­cept­ing all milk is crit­i­cal for new farms

Bush Telegraph - - Focus On Farming -

Fon­terra says be­ing com­pelled to ac­cept all milk from new farms will be a crit­i­cal part of the Gov­ern­ment’s re­view of leg­is­la­tion gov­ern­ing New Zealand’s $18 bil­lion dairy in­dus­try.

Agri­cul­ture Min­is­ter Damien O’Con­nor has an­nounced terms of ref­er­ence for the re­view of the Dairy In­dus­try Re­struc­tur­ing Act (DIRA), in­tro­duced 17 years ago.

Little has changed, while the in­dus­try it­self has al­tered sig­nif­i­cantly.

DIRA was passed in 2001 to dereg­u­late the ex­port dairy in­dus­try and reg­u­late Fon­terra, cre­ated that year from an in­dus­try merger which gave it 96 per cent of milk pro­duc­tion at the time.

To­day, with emerg­ing pro­cess­ing com­pe­ti­tion, it col­lects 82 per cent, though fig­ures due out next month are ex­pected to show a de­cline.

Fon­terra, a farmer-owned co­op­er­a­tive with listed units, has long pushed back against the DIRA re­quire­ment that it takes all milk of­fered to it, which has re­sulted in the com­pany hav­ing to spend hun­dreds of mil­lions on new stain­less steel pro­cess­ing ca­pa­bil­ity as an­nual milk pro­duc­tion climbed in re­cent years.

Fon­terra ar­gues this cap­i­tal re­quire­ment erodes its strat­egy to move from pro­cess­ing com­modi­ties to value-add prod­ucts, and is help­ing its in­ter­na­tion­ally-backed com­peti­tors.

Fon­terra said the re­view was “well over­due” though parts of DIRA, par­tic­u­larly the milk price regime, were still im­por­tant.

The in­dus­try had be­come highly com­pet­i­tive par­tic­u­larly with the rel­a­tively large num­ber of new en­trants in the past five years.

“These international new en­trants are of­ten backed by deep cap­i­tal and global busi­nesses. They do not need an ex­tra leg-up via milk from New Zealand farm­ers. Given this new com­pet­i­tive en­vi­ron­ment, the is­sue of open en­try — which means hav­ing to ac­cept all milk from new sup­pli­ers — is a crit­i­cal part of the re­view,” it said.

“Open en­try lim­its our farmer-share­hold­ers and the in­dus­try’s abil­ity to max­imise value for New Zealand.

“It dis­torts in­vest­ment de­ci­sions and leaves Fon­terra’s farm­ers un­der­writ­ing risk for com­peti­tors who cherry-pick their sup­pli­ers.”

Listed Syn­lait said it sup­ported the Gov­ern­ment’s com­pre­hen­sive scope of the DIRA re­view and was pleased it would look be­yond the cur­rent reg­u­la­tory frame­work to ad­dress some of the fun­da­men­tal is­sues fac­ing the in­dus­try’s fu­ture.

“We will be pro­vid­ing in­put and look for­ward to con­tribut­ing our unique per­spec­tive as a suc­cess­ful value-add nu­tri­tion com­pany in the in­dus­try.

“Our hope is that any leg­isla­tive changes will be fo­cused on sup­port­ing a sus­tain­able and high-value in­dus­try in New Zealand,” Syn­lait said.

Fon­terra has long pushed back against the re­quire­ment that it take all milk of­fered to it.

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