Fonterra wants one rule for all for in setting milk prices

Fonterra chief executive Miles Hurrell. Photo / Jason Oxenham

Fonterra wants all dairy processors to be subject to the same milk price rules that it has to comply with under the sector's legislation, DIRA.

DIRA - the Dairy Industry Restructuring Act - was enacted in 2001 to preserve competition in the New Zealand dairy market in exchange for allowing the country's two largest dairy co-operatives to merge and form Fonterra.

In its 66-page submission to a review of the legislation, Fonterra said it supported the current milk price regime - with its Commerce Commission oversight - remaining in place.

"Efficiency and informed decision-making by farmers would be improved if the transparency of price setting and payments was spread throughout the industry," Fonterra said.

"We support all processors being required to publish the average price they pay to farmers, the key parameters of their milk price and examples showing the payout that would be received for different parameters, in a way that is consistent across processors to allow proper comparison," it said.

Fonterra has already signalled that it supports the end of "open entry" - the rule that obliges it to automatically accept milk from farmers who have the required number of shares in the co-op.

"As a second preference, we support the removal open entry, and the non-discrimination rule in any region where our market share drops below 75 per cent and nationwide removal for new conversions and applications we consider unlikely to comply with our terms of supply," it said.

Fonterra's third preference was for an exception to open entry and the non-discrimination rule for new conversions and applications that it considers unlikely to comply with its terms of supply.

In its submission, Fonterra said DIRA's original rationale for providing large dairy processors with access to regulated milk from Fonterra, while they are establishing their own supply, may no longer stand.

"We support a strong, competitive domestic market. We do not support milk being given, effectively at cost, to new processors who are focused on exporting their product," the the co-op said.

Fonterra said it supported the status quo for Goodman Fielder - which serves the domestic market - and smaller processors, but with an additional fee of around 12c per kg of milk solids.

But it said it was no longer necessary to provide milk for export-focused processors - being those that source 30 million litres of their own raw milk, have capacity to process more than 30 million litres a year, and who export 20 per cent more of their processed volume.

In a covering letter, chief executive Miles Hurrell said DIRA had been critical to the performance of the New Zealand dairy sector since its passage in 2001.

"The evolution of the industry since 2001 has had a significant impact with dairy exports growing from $6.3b in 2001 to $17.1b in 2018," he said.

"Our co-operative wants an industry that promotes investment in regional New Zealand and where profits are kept at home for the benefit of all New Zealanders," he said.

The Ministry for Primary Industries (MPI) has received 188 submissions in response to its review of DIRA when the deadline closed on February 8.

MPI will now analyse all the submissions and develop policy recommendations for the Government to consider.

The Government will then decide whether any legislative changes should be made as a result of the review.

The review process is expected to be well advanced by the end of this year.