O'Connor Damien: Dairy Industry Restructuring Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
O'Connor Damien: Dairy Industry Restructuring Amendment Bill — First Reading 
[Sitting date: 03 April 2012. Volume:679;Page:1566. Text is incorporated into the Bound Volume.] 
Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) 
: 
 I am not sure that it is a pleasure but it is certainly an honour to speak on the Dairy Industry Restructuring Amendment Bill in the House today in respect of what is the biggest and most successful industry in this country. If it was not succeeding now this economy would be in dire circumstances and I think the Minister for Primary Industries has acknowledged that.  
Labour has a proud history in the dairy industry going back to the 1930s the 1950s through to the 1980s with the removal of subsidies and in 2001 when Labour in Government set up Fonterra. We have and are proud of that history. But we cannot support this bill today. We have supported the legislation on the basis of it being non-partisan and of there being general consensus. Indeed I think in the 1950s Labour developed a bill and it was passed by a National Government. We had consensus when we set up Fonterra. However we cannot support the National Government at this stage because we believe that this legislation is premature.  
There is too much misinformation a lack of information and indeed still great debate within the dairy industry on what might come of this legislation. In fact we heard last week from the Fonterra Shareholders’ Council a position that it could not support this legislation in its current form. That was a brave move for it but it made that statement because there are too many unknowns relating to this bill.  
The Minister has outlined what the bill does. There are basically three components to it. The first is a milk price - setting arrangement. That is currently in legislation and in regulation and what this bill seeks to do is legislate it going forward to ensure better transparency. The issue that dairy farmers have raised in relation to this part of the bill is that when the milk price - setting methodology was reviewed there were concerns from consumers and there had been constant bleating from companies getting milk from Fonterra that they were paying too much. Well in fact the review identified the reality that it would be “a reasonable proxy for how the milk price would be set in a workably competitive market.”—that is there was no major problem with it. What this bill says is that if Fonterra did happen to use its dominant position if it did happen to try to limit the amount of milk going to competitors or if it did happen to try to retain its farmer shareholders then it could possibly manipulate the milk price. Well Labour thinks that this might be perhaps an overregulation of what has proved to be a reasonably efficient way of establishing the raw milk price milk for competitors and a fair indication for farmers as to how much their milk is worth.  
The second component of this legislation is as the Minister said the trading of shares among farmers. This the most significant part of the legislation. There has been huge distraction constructed by the National Government and constructed by the board of Fonterra itself to distract farmer shareholders from getting down to the nitty-gritty of Trading Among Farmers—deep inside the details which have yet to be released in many cases. However there is a fear and a growing fear among farmers that this might be opening up the cooperative to outside investment outside ownership and ultimately outside control.  
The Minister shakes his head. I know that he quoted in his speech that this bill was about maximising returns to the New Zealand economy. I scratched my head and thought: “Where have we heard this before?”. I go back to a previous National Government: “The Government’s goals are twofold: firstly to see the industry performing to its maximum potential using resources as efficiently as possible and secondly to maximise the wealth and welfare of New Zealanders.” That is an honourable statement by a National Minister Mr John Luxton when he was deregulating the pipfruit industry. Ask any apple grower what the results are of that well-intended and noble gesture. Well the Minister makes similar statements now regarding the dairy industry.  
In fact the Ministry of Agriculture and Forestry’s documents imply that a cooperative is an inefficient and ineffective allocator of capital and that it is an inefficient and ineffective manager of one of our main industries. Unfortunately I have to say in this House that I believe that the underlying advice to many Ministers over a number of years from the Ministry of Agriculture and Forestry—the Ministry for Primary Industries as it is soon to be—is that it believes opening up all the sectors to markets will deliver the most efficient allocation of capital. That is basically flawed and it has been proven time and time again. That Minister’s officials have provided the same faulty advice on this piece of legislation. A number of people those who have had the time to go through and read the 251 pages of consultation can clearly identify the faults in that advice.  
We are concerned that Trading Among Farmers may open up opportunities for offshore investment. We are asking whether the farmer shareholders who will be able to trade shares will firstly be New Zealand residents. In fact what is the definition of “farmer”? And we will be seeking through the select committee process if this bill passes—if Mr Banks or Mr Dunne wants to support it—assurances that the farmers who will have the shares and be able to trade the shares will be New Zealanders be New Zealand residents and in fact be the very people who should be controlling and owning our most successful company.  
The third part of the bill is the share valuation process. This is very unfortunate. Wayne McNee the Director-General of the Ministry of Agriculture and Forestry said to the shareholders’ council of Fonterra that if it did not support Trading Among Farmers he would regulate Fonterra’s milk price and regulate its share price. That is the threat that has driven farmers to consider the need for Trading Among Farmers as much as the redemption risk be whatever that may. That threat—that threat—made at the shareholders’ council is very unfortunate for a senior official from a key Government department. Those people feel that if they do not support Trading Among Farmers they will have to face the third provision which I am referring to now and that is share valuation.  
The Minister I have to say almost quite dishonestly in his speech said that it would deliver fair value. No this insists on full valuation of a Fonterra share.  
Hon David Carter 
: No. 
Hon DAMIEN O’CONNOR 
: Yes it does. Yes it does Minister and you should go and read your own officials’ reports. It insists on a full valuation of a Fonterra share. This is some of the concern given that the board of Fonterra devalued its shares by 30 percent less than 2 years ago on the basis of limiting the tradability of the shares. If Trading Among Farmers does not go through and if shares cannot be traded at all why would the National Government insist on a process that delivers full value share? The point is that this is a cooperative. Most cooperatives are started on the basis of a nominal value share. This goes right to the heart of the cooperative and what we believe may be inside pressure to demutualise it.  
Labour is concerned and that is why we cannot support the bill because at this very time the National Government is determined to float shares of our State-owned enterprises. The Prime Minister himself has said that he would prefer to have Fonterra as a listed company. Both of those things are raising alarm bells in the minds of every dairy farmer up and down this country with a few exceptions. Some may see there being an opportunity— 
Hon Trevor Mallard 
: The ones who live offshore. 
Hon DAMIEN O’CONNOR 
: Well there are the ones who live offshore. Most of these dairy farmers have been National Party supporters but I can tell this Government now that those people are concerned that the National Government is pushing ahead with a bill that has too many unanswered questions. That is why Labour cannot support the bill in the House at this time.