Prosser Richard: Dairy Industry Restructuring Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
Prosser Richard: Dairy Industry Restructuring Amendment Bill — Third Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3824. Text is incorporated into the Bound Volume.] 
RICHARD PROSSER (NZ First) 
: 
 I am pleased to rise at this stage of the Dairy Industry Restructuring Amendment Bill on behalf of New Zealand First. I am pleased but I have to say also a little glum because we have come to what is apparently the obvious end of this process the culmination of which will be the bill’s passing into law. I have reservations about this as I know many others do and in spite of what the Minister for Primary Industries said earlier about the Labour Party caucus not being united behind its spokesman Mr O’Connor I am aware that there is some contention still within the National Party caucus on this bill because there are things about it that are not good and there are things about which I believe many in the dairy industry itself have reservations. But the bill will be passed and we will all have to live with that and with those possible consequences. 
Essentially this bill does not need to be passed in order to achieve the aims that it claims it intends to achieve. We are told that the bill will enable the Trading Among Farmers scheme which has perhaps been the most contentious issue. It will also instigate a price-setting monitoring regime and give us an alternative to the Trading Among Farmers scheme should the scheme not be taken up by Fonterra or should it not work and that will be the share-value fixing mechanism. But Trading Among Farmers is not as we have discussed in this debate earlier what farmers voted on originally. The scheme as it was originally mooted was about trading among farmers but it has morphed into trading including farmers. As has been mentioned by me and by others in earlier sections of this debate if the trading scheme requires external capital then it cannot be by definition Trading Among Farmers and it is quite possibly not the right model for Fonterra to be following. The numbers that are worked around what Trading Among Farmers needs to achieve is that it needs to provide a shareholder pool of around 8 percent. That would require because of the limitations on the number of individual dry shares that each farmer shareholder can own—being limited to 5 percent of the total—something like 25 percent of all farmers to give up 20 percent of all their holdings and that is unlikely to happen which means that we will need outside investors. So the scheme is not about trading among farmers. 
The process by which the system has been examined was rushed. The period for submissions was truncated from something like 6 months to something like 4 weeks about 3 weeks of which Parliament was in an adjournment. Comments have been made that this was perhaps done to suit the agenda of a Government that perhaps wondered whether there was—or even knew that there was—quite a lot of opposition to the bill amongst the industry that it concerned. 
The Primary Production Committee which I was privileged to be an observer on—a fly on the wall you might say and a fly who was doubly privileged to be allowed to make buzzing noises every now and then; I am grateful to the committee for that ability to have input—certainly did not have as much time as any of its members would have liked in order to consider all submissions and consider all the possible ramifications of the bill. The Minister claims that the vote taken by Fonterra’s farmer shareholders gives Fonterra a mandate. Others have mentioned the numbers involved. We do not know in fact whether it was a majority of shareholders; we know it was a majority of shares. As to whether that process is a democratic one that has been passed we can question the ins and outs and the ethics of it as much as we like but the fact remains that we have a mandate on paper and whether or not we believe it is a mandate in truth is something that history will come to record. 
 The flip side to Trading Among Farmers—whether it goes ahead or not—is the share-price setting regime. Examinations into both the milk price and the share price by the Commerce Commission and by others have all come to the conclusion that both the share price and the milk price are reasonably fair anyway so these are not necessarily things that need to be examined and not something for which we need this bill to be passed. 
We are told also that one of the purposes for Trading Among Farmers is that it will strengthen the capital markets of New Zealand. I wonder—as I have wondered through this process—how this will be of benefit to Fonterra or to the New Zealand dairy industry. It will not because beyond the initial bonus share issue—the dry share issue—the trading scheme will not benefit Fonterra at all. It will in fact benefit only the traders. Fonterra will gain a pool of capital from the selling of dry shares and after that it can really wash its hands of what happens with the trading of those shares but it cannot because as those shares are traded they will increase in value—they have to increase in value; there is no point in trading shares unless they increase in value—and as those dry shares increase in value as the units attached to them increase in value so the wet shares will increase in value also. This will give the lie to the stated intention of the bill and of indeed the Dairy Industry Restructuring Act itself to enable free entry and exit to the cooperative. Although free entry and exit will be there on paper it will be limited by the cost of the shares. The share value increasing will not only affect the ability of farmers to enter and exit the co-op but actually create redemption risk where redemption risk does not seriously exist at the moment. Sure redemption risk is a factor that we need to take into consideration and we have seen redemption but as has been stated numerous times through this debate it is not as big a bogey man as it has been made out to be. Given that that the stated reasons for Trading Among Farmers is that it will assist Fonterra to alleviate redemption risk or provide it with a capital pool for growing its brand’s business this bill is not necessary. 
There are other mechanisms by which these ends can be met. Redemption has been overstated as I have said but it can be alleviated by changing the period over which share values are paid out to farmers leaving the co-op from 30 days as it currently stands to 3 years. This does not need a legislative change for Fonterra can do that now if it wishes without needing the law to be altered. Alternatively the retention of 30c a kilo we are told over 3 years would raise $1 billion for Fonterra and since all Fonterra’s wealth comes ultimately from milk any means of raising capital will come from retention or reduction of profits anyway. For this to happen this bill is not necessary. Fonterra can do this now without needing the law changed. 
Alternatively again part of Fonterra’s offshore business could be separated could be corporatised and could be floated on world markets with the profits being retained by the cooperative. These offshore businesses are largely joint ventures anyway and have the potential to grow to the point where they could actually swamp the parent company. There is a case that can be made for separating and floating off Fonterra’s offshore businesses and for Fonterra to retain control and ownership of its New Zealand operations and of its brands businesses. This is a mechanism by which Fonterra’s need for an additional capital pool could be met without passing this bill. 
We disagree fundamentally in New Zealand First that the milk market needs to be contestable. This is because there is a clash of philosophies here. Either there is a virtual monopoly or there is not. Fonterra exists as a creature of statute that was created because the dairy industry came to Parliament and said: “We wish to merge and we wish to become something that is larger than is allowed under commerce and fair trading rules.” Parliament looked at the model that Fonterra would become if it were allowed to be created and said: “Yes we can see that this will be of value to ‘New Zealand Inc.’ as a whole because this thing is going to be large it is going to be powerful and it is going to benefit everybody.” So it was allowed to exist. To attempt to introduce the concept of contestability at the same time as a virtual monopoly is a clash of ideologies. It is attempting to have one’s cake and to eat it as well and we do not believe that it is a desirable thing let alone a necessary thing. 
My erstwhile colleague from the Greens referred to this process as the privatisation of Fonterra and I confess it is a term I have used myself. I must clarify that we are all fully aware that Fonterra is entirely private. It is a collection of private businesses of private farmers of people who get up at 4 o’clock in the morning and go and do the dirty work so the rest of us can enjoy the benefits of the foreign exchange that their industry earns. It is about corporatisation rather than privatisation and although I agree with Mr Browning’s sentiments I must clarify the terminology around it. But the purpose of a co-op is to maximise the returns to its shareholders. If either the share values or the dividends are maximised instead of the returns to farmers—instead of the milk price—there is no way that the farm-gate milk price can return those maximum profits to its farmer shareholders because as I said earlier all the money comes from one bucket of milk. 
In closing I wish to restate what the departing Chief Executive Officer of Fonterra Andrew Ferrier said in September 2011. Fonterra does not need outside capital. Indeed it does not and it does not need this bill either. New Zealand First does not support this bill.