Fonterra sour over milk collection rule
Accepting all milk is critical for new farms
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.