Fonterra frothing at milk shake-up

Fonterra says the recommendations will hinder plans to make milk more affordable in New Zealand. Photo / Bloomberg

Fonterra has attacked proposed changes to raw milk regulations, saying profits will head overseas and it will hinder, rather than help, New Zealanders get access to affordable milk.

Consultation has opened on the Government's proposed response to reviews of Fonterra's farm gate milk price setting, which includes a recommendation that an annual milk price monitoring regime be undertaken by the Commerce Commission, and the raw milk regulations.

Yesterday, Fonterra chairman Sir Henry van der Heyden said the proposed changes to the raw milk regulations would not work.

Instead, New Zealanders would be subsidising increasingly foreign-owned dairy processors that did not sell milk in New Zealand and who sent their products and profits offshore.

"The Government's move to require more raw milk to be handed over to increasingly foreign-owned dairy companies ... will impose nearly $200 million of additional costs over the next three years alone and work against our efforts to reduce the price of milk in New Zealand," he said.

The extra 200 million litres of milk it would be required to supply competitors each year would head offshore as the increasingly foreign-owned competitors simply shipped it as milk powder to their lucrative overseas markets, van der Heyden said.

"We are all for strong competition around the price of milk in New Zealand and we are happy to supply competitors who share our commitment to getting the price of milk down for Kiwis.

"But it makes no sense for Fonterra's farmers to do the hard yards producing this milk, only to be forced to hand it over to companies who then ship it straight offshore and pocket the profits."

The co-operative was competing fiercely in international markets against tough foreign competition. It made no sense to hit it with $200 million in extra costs with regulations that had no benefit for New Zealand consumers, Fonterra chief executive Theo Spierings said.

The proposed legislation would further fragment the New Zealand dairy industry and weaken the country's export returns, strengthening its overseas competitors "at the expense of the New Zealand economy and the average New Zealander", Fonterra Shareholders' Council chairman Simon Couper said.

Primary Industries Minister David Carter said comprehensive work by the Ministry of Agriculture and Forestry, with input from economic, regulatory and legal experts, had resulted in a set of preferred options for amendments to the Dairy Industry Restructuring Act (DIRA) and the raw milk regulations.

The review of farm gate milk prices found that although Fonterra's approach was consistent with that expected in a competitive market, lack of transparency remained an issue, Carter said.

To strengthen confidence in Fonterra's milk price setting process, the review recommended:

Embedding Fonterra's current milk price governance arrangements in legislation.

Requiring Fonterra to publicly disclose information about its milk price setting.

Introducing an annual milk price monitoring regime to be undertaken by the Commerce Commission.

The amendments would result in a regulatory regime that promoted a more transparent and efficient dairy market, Carter said.

RULE REVIEW

- The preferred option for the revised raw milk regulations recommended:

- A three-season limit for independent processors who source raw milk directly from farmers.

- An increase in the total quantity of milk available under the raw milk regulations to around 5 per cent of Fonterra's milk supply, as presently allowed for.

- A range of maximum quantity limits for independent processors accessing milk under the raw milk regulations in different months to reflect the seasonal nature of production.

Submissions close on February 24.