Brownlee Gerry: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
Brownlee Gerry: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
[Volume:658;Page:7579] 
Hon GERRY BROWNLEE (Acting Minister of Agriculture) 
: I move  
That the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill be now read a first time. 
 At the appropriate time I intend to move that the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill be considered by the Primary Production Committee that the committee present its final report on or before 2 March 2010 and that the committee have the authority to meet at any time while the House is sitting except during oral questions and during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
This Government is committed to delivering growth in order to ensure prosperity for all New Zealanders. Part of delivering on this commitment is ensuring a fair and competitive business environment. To this end the Minister of Agriculture the Hon David Carter announced in September the Government’s decision to introduce a bill to amend the Dairy Industry Restructuring Act 2001 in order to replace the current regulated price formula for raw milk. The Dairy Industry Restructuring Act provided the authorisation that permitted the merger of the New Zealand Dairy Board Kiwi Co-operative Dairies Ltd and the New Zealand Dairy Group to form the Fonterra Cooperative Group Ltd. 
The Act promotes the efficient operation of dairy markets in New Zealand and it does that by regulating the activities of Fonterra thereby ensuring that the market for dairy goods and services is contestable. The contestability is achieved by a suite of pro-competitive measures which include permitting the Minister of Agriculture to make regulations that compel Fonterra to supply up to 5 percent of its raw milk to independent processors at a regulated price. Raw milk is the milk collected from the farms before it undergoes any processing. The Minister may also specify the price the method for determining the price and other items and conditions. 
The Act is also the empowering legislation for the Dairy Industry Restructuring (Raw Milk) Regulations which we seek to amend with this new bill. The review of the raw milk regulations in 2008 identified that Fonterra was forced to sell the raw milk at a price much less than what it paid farmers for the supply of the raw milk due to the formula being used. That was never the intent of the regulations. This bill proposes to replace the current regulated price formula for raw milk with the Fonterra farm-gate milk price plus 10c per kilogram of milksolids for the 2010-11 dairy season. The Fonterra farm-gate price is the milk component of the Fonterra payout and represents the average price Fonterra pays its farmers for raw milk across the season. The 10c margin addresses the fact that independent processors can access a square or uniform milk supply rather than a seasonal supply—a much more desirable result for all parties. Given that the uniform supply is considerably more valuable to processors than a seasonal one the Government considers it fair that the regulations permit a margin to reflect just that. 
The price change addresses the immediate underpricing of raw milk. The change is needed to ensure that independent dairy processors that buy raw milk under the regulations pay the same price for raw milk that Fonterra pays its farmers for the supply of that raw milk. The price change also provides independent dairy processors with the right economic incentives to source raw milk directly from farmers where practicable rather than under the regulations. This better promotes the objective of the Dairy Industry Restructuring Act—that is to create a contestable market for farmers’ raw milk and to ensure that the market operates efficiently and fairly. 
To achieve this price change the Act must be amended to allow the Fonterra farm-gate price to be incorporated in regulations through reference to an external document. In this case it is the report of Fonterra’s annual accounts as contained in its annual report for the respective season. The bill introduces a provision to allow external documents to be incorporated by reference in any regulations made under the Dairy Industry Restructuring Act. An option would provide for a more efficient method of pricing and allocation of raw milk amongst competing processors’ demands and is one possible long-term solution to a regulated milk price. The bill permits the introduction of an option for the raw milk by regulation and includes provisions for the Minister of Agriculture to specify the details of how such an option might function. The amendment future-proofs the Act by allowing the Minister of Agriculture to introduce an option in the future for amending regulations rather than further amending the Act. Since the Minister of Agriculture announced his intention to introduce this bill he has received strong support for it from the primary sector at both the processor and farmer level; no one should be surprised by that. 
The Minister of Agriculture has asked me to inform the House that the review of the raw milk regulations in 2008 also identified considerable industry uncertainty regarding the end of Fonterra’s regulatory obligations to supply raw milk to independent processors. Currently the relevant regulations will expire once a certain amount of competition for farmers’ raw milk has been reached in each of the North and South Islands. However there is no mechanism available to industry participants for assessing when this obligation might cease and no provisions for a phase-down or phase-out period. The Minister of Agriculture has announced his intention to conduct a consultation process on this issue to commence in this calendar year. 
On behalf of the Minister of Agriculture the Hon David Carter I commend this bill to the House but I add that it is very much a progressive bill and part of the Government’s overall programme to lift the economic performance of this country. There is no doubt that dairying is a significant contributor to the country’s export receipts and people can rest assured that the opportunity to encourage growth in this industry at any level lies behind this particular bill. 
I know that the Labour Opposition is likely to oppose this legislation because it will lead to a lot more competition for the milk that is produced at the farm gate. Ultimately I think that will lead to better prices for farmers. It will lead to the sort of investment that we have seen from the Open Country Cheese Co. and from Synlait and that we know is planned by others around the country. It will facilitate the sort of stand-alone opportunities taken by farmers who supported their own cooperative on the West Coast where they have had good prices for their product over a period of years. 
In the end New Zealand needs to be able to sell more produce overseas if we are to start getting the lift in export performance that we want. This enabling legislation will mean that there can be more creative thinking about the sorts of products that may be derived from raw milk. As many people in the House will know a raft of things can be developed further manufactured or enhanced from raw milk. 
Hon Parekura Horomia 
: What’s this joker talking about? 
Hon GERRY BROWNLEE 
: The member opposite asks whether I know what I am talking about. I tell him that I do know what I am talking about. The quality of New Zealand milk is served a great testament by one look at him! He once described sheep as “nothing more than smelly sods.” I will not refer to him in such a way but I will say that the fleece on his head looks as if it could contribute to New Zealand’s export receipts in a way that would be quite substantial. 
With those comments I conclude my remarks. This is a very good bill it is a progressive bill and it is the sort of bill that people can expect to see more of from the National Government as we free up the economy and as we free up those entrepreneurs in it who are committed to making our targets of better incomes for New Zealanders a reality.