Prosser Richard: Dairy Industry Restructuring Amendment Bill — In Committee 
Text is incorporated into the Bound Volume 
Prosser Richard: Dairy Industry Restructuring Amendment Bill — In Committee 
[Sitting date: 17 July 2012. Volume:681;Page:3554. Text is incorporated into the Bound Volume.] 
RICHARD PROSSER (NZ First) 
: 
 I am pleased to take a call in the Committee stage of the Dairy Industry Restructuring Amendment Bill. I think it is a great shame that the National Party as the Minister in the chair the Minister for Primary Industries has indicated is not going to support the Hon Damien O’Connor’s Supplementary Order Paper 85 which is proposing to place a 23 percent cap on the size of the shareholder fund because I think if the Government were to do that it would be very much a sign of good faith in so far as this process is concerned. New Zealand First does remain opposed to the passage of the bill for a number of other reasons but we are prepared to support the Supplementary Order Paper as it stands. We believe that if a cap is placed in legislation on the size of the shareholder fund relative to the totality of Fonterra that will make the bill a less bad thing than it currently is.  
It is contentious that Parliament is debating this bill at all. It is a bill that regulates essentially a private industry but at the same time it is a private industry that has come to Parliament and to the Government in the past to ask for itself to be regulated and to be allowed to operate outside of other regulations. Obviously Fonterra was created as a creature of statute to be allowed to be a virtual monopoly. It was recognised by the Parliament of the day that as a virtual monopoly Fonterra’s size and its strength would be of great benefit to “New Zealand Inc.” as a whole and history has shown that that is very much the case. However over the last 10 years things have changed a little and there is a desire amongst some to evolve the path I believe of Fonterra. It is Fonterra’s own desire and the desire of Fonterra’s shareholders to evolve and to continue growing their business and to do this they tell us they require greater capital. There is also the spectre of redemption risk which faces any co-op and for these reasons this amendment bill has come before Parliament. 
We in New Zealand First believe that the redemption risk has been somewhat overstated. We do not believe that it is the great demon that it has been made out to be and we believe that if there is real redemption risk this can be dealt with in other ways than the Trading Among Farmers scheme. Trading Among Farmers the TAF scheme is probably the most contentious part of this bill as it stands. But as Mr Ardern alluded to earlier it is probably clouding the other major part of the bill that being the milk price - setting mechanism which is just as important and has probably slipped into the shadow a little bit because of the contentious nature of Trading Among Farmers. I think it is a shame that the monitoring regime is in place in the bill as it is because as the Commerce Commission found and as other investigations have found the manner in which Fonterra sets its farm-gate milk price is reasonably fair anyway and is probably a fair reflection of what would be the case in a genuinely open market anyhow. So it probably does not need to be changed and it certainly does not need to be mucked around with.  
However there is a potential that if there is this supposed outside oversight of the way Fonterra sets its milk price then that milk price may be subject to influence from people who do not necessarily understand the industry and who do not necessarily understand or appreciate the real thrust behind a cooperative which is essentially to maximise returns to its owner-shareholders who are its investors. We believe that the primary philosophy behind the setting up of Fonterra as a major co-op—that being to maximise the farm-gate milk price—is a good one. It should be adhered to because it maximises returns to New Zealand farmer-shareholders without allowing a major part of that profit stream to be generated from external sources such as dividends and so forth from share trading. Trading Among Farmers of course is the instrument that will allow that to happen. 
Our concerns about Trading Among Farmers are primarily as has been stated earlier in this debate about Trading Among Farmers as it is now proposed and as farmers voted on. We can argue the numbers back and forth—and that is probably a pointless argument now because farmers did vote in favour of instigating the Trading Among Farmers scheme. But we do not believe that they understood it fully. We do not believe that they were given all the information. Certainly I do not believe that the Primary Production Committee had time to assimilate all the information nor to assimilate all the submissions and we believe that there is still a great deal of contention around that. However it is certainly not the scheme that was originally offered to them or the scheme that was guaranteed to provide 100 percent farmer ownership and control and we do not believe that the Trading Among Farmers scheme as it is proposed can do that. 
If the Trading Among Farmers scheme was simply trading among farmers and did not require outside investors then that would be a great thing but because of the numbers that are required in order to make the shareholder fund work it appears that Trading Among Farmers cannot work unless it has outside investors which to our way of thinking suggests that it is probably not the right model for Fonterra. There are other ways in which Fonterra can raise capital if it needs capital. They essentially all come down to retention in one form or another. We have had it suggested to us that 30c a kilo retained over 3 years would raise $1 billion for Fonterra which—