Synlait to add voice to concerns about loosening of market reins on Fonterra

Synlait collects milk from farmers in Canterbury and the Waikato. Photo / Supplied

Sharemarket-listed Synlait Milk will join an approach to the Beehive by independent dairy companies concerned Fonterra is being given the green light to further flex its market muscle.

Synlait has confirmed it will join Open Country Dairy and Miraka at a meeting next week with Agriculture Minister Damien O'Connor, who supports the removal of Fonterra's legislated obligation to allow farmers who leave the big co-operative to return.

The chief executives of Open Country and Miraka believe the removal of the compulsion, a surprise addition to a Bill nearing passing stage in Parliament, will enable Fonterra, which controls about 80 per cent of New Zealand's raw milk supply, to lock in milk.

They predict Fonterra farmers will be afraid to join new startups or dairy companies trying to set up in regions such as Northland, where Fonterra dominates.

Synlait would not discuss its reason for joining the meeting.

Miraka chief executive Richard Wyeth said exiting the security of Fonterra for a startup which may fail requires "a leap of faith" by farmers whose livelihoods depend on their milk being picked up each day.

The Dairy Industry Amendment Bill (No 3) also removes Fonterra's obligation to accept milk from any farmer in the country willing to buy shares in the farmer-owned co-operative, New Zealand's biggest company and the world's fourth-largest dairy entity.

O'Connor's office said he wants the Bill passed by the September election.

The smaller companies' concerns appear merited judging by Fonterra's rejection of a special request by O'Connor.

Herald inquiries have revealed that O'Connor, while supporting the removal of the acceptance obligations, asked Fonterra "to consider amending its constitution to reward the loyalty of its farmers when it comes time to sell their farms, by honouring its existing commitment to collect milk from these properties".

Fonterra has told the Herald the answer is no.

Agriculture Minister Damien O'Connor. Photo / File

Outgoing chairman John Monaghan said changing its constitution would be a significant process, and unnecessary given Fonterra has recommitted to an agreement made with Federated Farmers in 2017.

That was: "Should the open entry provisions be removed from Dira (Dairy Industry Restructuring Act), Fonterra will continue to accept applications to supply from all farms that are, at the time of the application, supplying Fonterra on a share-backed basis, until the remainder of the pro-competition provisions in Dira fall away".

Fonterra has long-lobbied against the compulsion to accept all milk, legislated at the time of its formation from an industry merger in 2001 to rein in its market power - 96 per cent at the time. The obligation was written in to ensure farmers in remote locations still got their milk picked up and could freely come and go from the company.

Miraka's Wyeth questions "the rush" to pass the amended legislation.

Particularly, he said, as the select committee which considered the Bill acknowledged the dairy sector had not had the chance to debate the introduced clause, which he calls "an attack on free re-entry".

Wyeth said the select committee recommended the clause be "further refined taking into account the sector rules", but made no recommendation how that might be done, and included it anyway.

Open Country, Synlait and Miraka have emerged since the 2001 Dira legislation deregulated dairy exporting, striving to win milk supply from Fonterra farmers.

While Open Country is now the country's second-largest dairy processor and exporter, it still only has 1000 suppliers compared to Fonterra's around 10,000. Miraka has about 100 suppliers and Synlait, which operates in Canterbury and the Waikato, has around 300.