Sage Eugenie: Dairy Industry Restructuring Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
Sage Eugenie: Dairy Industry Restructuring Amendment Bill — Third Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3832. Text is incorporated into the Bound Volume.] 
EUGENIE SAGE (Green) 
: 
 E te Mangai o te Whare tena koe. Tuarua ki nga mema o totatou Whare tena koutou katoa. Tuatoru mihi atu ki te Wiki o Te Reo Maorina reira tena koutou tena koutou katoa. 
[ 
Greetings to you the Speaker of the House. Secondly greetings to you all members of our House. Thirdly acknowledgments to Maori Language Week so greetings to you all collectively. 
] 
The Green Party would have liked to support the Dairy Industry Restructuring Amendment Bill. We have concerns about the environmental management of dairying but we want Fonterra to succeed. The bill introduces a new milk price regime to strengthen the existing incentives for Fonterra to operate in accordance with the existing contestability standards in the substantive Act. It gives statutory backing to Fonterra’s existing governance and transparency processes by including them in the bill. It also introduces a new system for monitoring the farm-gate milk price to be done by the Commerce Commission and the Commerce Commission will assess whether the farm-gate milk price provides incentives for Fonterra to operate efficiently. 
That is useful but the Green Party’s concerns with the bill centre on the new share trading system Trading Among Farmers. The purpose of Trading Among Farmers is to provide a capital base to act or to use as a buffer against redemption risk or the risk of losing capital because farmers leave the cooperative. Government members argue that Trading Among Farmers is an effective substitute for existing share issue and surrender obligations when farmers enter or leave the cooperative so that they can continue to do that freely. Our concern is that introducing Trading Among Farmers signals a shift to the demutualisation and corporatisation of Fonterra. 
Leonie Guiney summed up these concerns in her submission to the Primary Production Committee. She framed the issue as a choice between keeping Fonterra New Zealand - owned and able to put cash into communities through the milk price or enabling Fonterra to become a target for large-scale overseas investors. She said that Trading Among Farmers was “a temporary solution to a problem of redemption risk that is being exaggerated with an eventual loss of farmer ownership and control.” The Green Party agrees. The bill will benefit capital markets from trading but it is questionable whether in the long term it will benefit dairy farmers. 
Fonterra is the world’s No. 1 dairy cooperative. Trading Among Farmers creates a hybrid structure and two competing sets of principles between those regulating stock markets and those governing cooperatives and that is where our concern lies. As a cooperative Fonterra currently aligns the interests of dairy farmers who want their milk collected and a fair price given and the fiduciary duties of the board to act in the interests of suppliers. But Trading Among Farmers changes that and as the James Morrison Consulting report as independent advice to the select committee said: “The introduction of a new class of external investor as proposed in TAF creates a conflict for directors that is not resolved by the dairy farmer retaining voting rights …” and “The tensions that will inevitably arise between farmer suppliers to Fonterra external investors and the Fonterra board’s fiduciary duties to those investors cannot simply be contracted out of by the proposed systems. They represent”—Mr Morrison said—“a high risk of ongoing conflict between investors and supplying farmers.” And the result and likely outcome of that will be he said that the ownership of Fonterra becomes increasingly separate from farming over a timeframe of several decades. 
As other speakers in this debate have noted where you get this conflict of interest between investors and suppliers every cooperative that has introduced external investors to its capital structure has eventually either demutualised or reverted back to a full cooperative by excluding those external investors. The fundamental changes to the successful cooperative structure of Fonterra are the reason why the Green Party is opposing this bill.