Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
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Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill 
Second Reading 
Hon Dr NICK SMITH (Acting Minister of Agriculture) 
: 
 I move  
That the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill be now read a second time 
. The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill was tabled in the House in October 2009. It had its first reading on 28 October 2009 after which it was referred to the Primary Production Committee for consideration. The committee received and considered 11 written submissions and heard nine oral submissions on the bill. 
This bill improves on the Dairy Industry Restructuring Act 2001 by providing more flexibility in the pricing and allocation of regulated raw milk both now and in the future. The Dairy Industry Restructuring Act 2001 permits the Minister of Agriculture to make regulations that require Fonterra to sell up to 5 percent of its milk supply to independent dairy processors. The Dairy Industry Restructuring (Raw Milk) Regulations 2001 currently require Fonterra to supply up to 600 million litres of raw milk to independent processors at a price determined by a formula in the regulations. The formula was originally required because of the historical industry practice of bundling milk and capital returns into a simple payout for farmers. The industry has since moved on and Fonterra now provides a distinct milk price that is separated from capital returns. It is now time for the regulations to move on too and adopt a more modern approach to pricing. 
Upon the passing of the bill I will replace the old formula with the Fonterra farm-gate milk price plus 10c per kilogram of milksolids. The Fonterra farm-gate price represents the average price Fonterra pays farmers for raw milk across the season. The additional 10c per kilogram of milksolids represents some of the additional costs to Fonterra of providing independent processors with an even quantity of milk through the season. An even supply is more valuable than the seasonal or bell-shaped supply that Fonterra receives from its farmers. The new price will apply from 1 June 2010 which is the start of the 2010-11 dairy season. The new price will remove the immediate mispricing of raw milk that was identified during the 2008 review of the regulations. 
Some submitters on the bill raised objections to the new pricing system as they were concerned about the impact of a price increase on their business. Although this objection can be expected the change is needed to ensure that the independent dairy processors that buy milk under the regulations will pay the same price that Fonterra pays its farmers for the supply of that milk. The new price will provide independent dairy processors with improved economic incentives to source milk directly from farmers where practicable rather than under the regulations. By promoting contestability in the market for farmers’ milk this new price will better reflect the purpose of the Dairy Industry Restructuring Act to promote the efficient operation of dairy markets in New Zealand. 
The bill also allows for regulated raw milk to be allocated through an auction system or any other method. This future-proofs the Act by providing extra flexibility in the way that regulated milk is allocated to independent processors. Developing a system for managing excess demand for regulated milk will become increasingly important over the next three to four seasons as the dairy industry is becoming increasingly diversified and the number of independent dairy processors has increased. An auction would provide one method for efficiently allocating regulated milk amongst competing processor demands and is one possible long-term solution to regulated milk pricing. Submitters on the bill raised concerns about mainly the design features of an auction system. These features would be critical to ensuring that an auction system produced efficient prices and resulted in an efficient allocation of milk. If an auction system is to be introduced in the future the Ministry of Agriculture and Forestry will further consult the industry on the appropriate auction design features. 
The Ministry of Agriculture and Forestry is currently reviewing the longevity of the entire pro-competition regime that regulates Fonterra. The review is looking at the regulatory regime to see that it remains fit for purpose given the evolution of the structure of the dairy industry since 2001 and therefore should be continued for longer than currently planned. If the review finds that the raw milk regulations should be extended into the future then it may become necessary to introduce another mechanism for ensuring that regulated milk is both priced efficiently and allocated to those it was designed to protect without discouraging important contestability in the market for farmers’ milk. 
The flexibility provided by this bill means that a number of policy options including an auction system will now be readily available through amendments to the regulations only. The bill also includes a provision to allow our external documents to be incorporated by reference in any regulation made under the Dairy Industry Restructuring Act. The Primary Production Committee has recommended amendments to the incorporation by reference clauses in the bill in order to ensure that these are consistent with current standards. I support these recommendations. 
This bill is about a more modern and flexible regulatory framework for pricing and allocating regulated raw milk. By promoting contestability in the market for farmers’ milk this bill builds on the purpose of the Dairy Industry Restructuring Act to provide for the efficient operation of the all-important dairy industry and its markets in New Zealand. I particularly thank the members of the Primary Production Committee for the hard work and effort that has gone into this bill. I think that the Primary Production Committee is respected as one of this Parliament’s most effective committees for our most important agricultural industries and I thank the committee for the work that has gone into the report that was tabled on 22 February. I commend this bill to the House. 
Hon JIM ANDERTON (Leader—Progressive) 
: 
 Since 2001 the Minister of Agriculture has been able to require Fonterra to supply up to 5 percent of its milk supply to independent processors at a regulated price. This was brought about by the formation of Fonterra and the need to protect independent processors in competition with it. At the time Fonterra might have been inclined—and there were signs that it was—to overprice those supplies to independent suppliers. A regulated price was brought in to ensure that independent processors got milk supply and got it at a reasonable price. In fact the supply of milk to independent processors tended to be underpriced if anything and the cost to Fonterra and therefore to the dairy farmers who supplied it was somewhere between $5 million and $17 million a year depending on the farm-gate price that Fonterra paid at the time. 
In addition the value of an underpriced milk supply to some independent processors was further enhanced by their ability to take advantage of the flexibility to increase or decrease the quantity of raw milk that they purchased through the season which was a flexibility that Fonterra itself did not enjoy. It had to take all milk delivered to it whenever it was delivered and pay for it. Fonterra not to weep too much on its behalf had received a very significant benefit from the original merger which took place due to the Commerce Act being suspended by the then Labour-led Government. But it would be unfair if suppliers to Fonterra paid an unfair subsidy to the competitors of Fonterra which in the event proved to be the case. 
This Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides some balance and certainty to that situation. It permits regulations to be made that replace the current wholesale milk price formula with the Fonterra farm-gate price plus a seasonal margin of 10c per kilogram of milksolids from the 2010-11 dairy season onwards. It also allows for raw milk to be allocated through an auction process in the future. This will mean that a framework and a system will exist to manage excess demand for regulated raw milk by independent processors and therefore manage the transition risk associated with the approaching end to Fonterra’s statutory obligation to supply regulated raw milk which runs out very soon—thus there is some urgency about this bill. 
The previous Labour Government had intended that the auction should start in the 2009-10 season. The auction was to allow for excess demand to be priced rather than regulated through quantity of supply. The price mechanism would also have a component that would guarantee supply to small processors so all elements of the dairy industry were taken into account. For a variety of reasons this option ran out and the first auction will now take place in the 2010-11 dairy season. This change has created considerable uncertainty for the dairy industry and it is very desirable that that uncertainty is ended as quickly as possible so that informed investment decisions can be made for the 2010-11 season. 
The option that this bill supports will mean there is a fair and efficient price any excess demand is managed efficiently uncertainty in the industry is removed and there is a stepping stone provided to introduce an auction system. It will also mean there is no incentive for Fonterra to manipulate its wholesale price because to do so would mean that it would have to overpay all of its farmers—not just the 4 percent who are being supplied as independent processors but the other 96 percent of Fonterra’s suppliers. That is not economically credible or viable for Fonterra to do so any temptation it might have had to overprice will be dampened somewhat by the cost of any such action. I think that is rather a neat solution to what could have been a significant problem. 
Replacing the current regulated price formula—that is the wholesale price of milk—with the Fonterra farm-gate price plus 10c per kilogram of milksolids from 2010-11 requires amendments to the original Dairy Industry Restructuring Act. The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides for those amendments. I support its second reading and its progress through the House. The dairy industry is our major export industry. It is among our most efficient industries. It is highly competitive on world markets. It has been innovative and it has expended a significant amount of New Zealand’s research and development budget to ensure its position as our No. 1 exporter. It well behoves the House to take this bill seriously and expedite it so that all of the measures I have mentioned in the words I have addressed to the House so far can take place in a timely manner. 
SHANE ARDERN (National—Taranaki - King Country) 
: 
 I rise in support of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. In doing so and at the beginning of my comments I declare that I am a shareholder of Fonterra. In accordance with the Standing Orders I declare that interest. 
What we are talking about in this bill and what two earlier speakers have talked about is the raw milk regulation under which Fonterra has to provide milk—up to 600 million litres or up to 5 percent of its total milk production—to its competitors. Those are the small companies and sometimes not so small companies that also participate in the international market and in the domestic market in New Zealand. I will mention a figure and I ask members to take note of it. Fonterra now represents 84 percent of our export milk not the 93 percent not the 95 percent not the 100 percent monopoly and not the other figures that we often hear about but 84 percent of our export milk—that is products made from milk that are exported annually from New Zealand. 
The Primary Production Committee as the Minister said in the first reading debate considered a number of issues listened to many submissions and made some recommendations which I am pleased to say have been accepted. One of the submissions was from Westland Cooperative Dairy Co. which was one of the companies that were originally involved in the Dairy Board. I guess it was one of the legacy companies at the beginning of the process that chose to stay out of the merger that originally formed Fonterra. Westland Cooperative Dairy Co. made an excellent submission in the sense that it identified the intent of the legislation—the Dairy Industry Restructuring Act 2001—and said the company had been disadvantaged by that Act. That is another side of the argument. The company said that it was disadvantaged because of its location and that because the company had understood entirely the intent of the raw milk regulation when it was first set up the company had chosen not to take up its entitlement to collect the 50 million litres of raw milk that it would have been entitled to collect from Fonterra. 
As it has turned out the milk provided by Fonterra to other companies was provided at a subsidised price and because other companies that export into the same markets as the Westland company chose to take that milk the Westland company felt that it had been disadvantaged. So its submission was about whether the Act should be extended beyond the point where of course the triggers within the Act will be met. Those triggers are a percentage of milk in the South Island that is not going through the Fonterra structure and a percentage of that milk in the North Island. As previous speakers have said the South Island trigger is probably about 12 months away from being met and the North Island trigger is 2 or 3 years away from that on current forecasts. So within 3 years or maybe 4 years the current raw milk regulations could expire. 
The debate is about whether the triggers in the Act should be extended. The question is what percentage of milk going through Fonterra and into our export markets is acceptable. If 84 percent is still considered to be too high then what percentage would people be happy with? If we compare that system with the structure of other primary industries such as our meat and wool industry structures and if we talk to people involved in those industries we find they feel that their industries are too fractured. They will potentially come to the Government at some stage and ask for some assistance somehow or other to merge companies so that they can get more critical mass into their export structures. 
That is the debate in essence. The select committee was happy with the general direction that is being taken as the Minister said when he announced changing from the raw milk regulation we previously had in terms of pricing to the current proposal—that is it will be the Fonterra farm-gate price plus 10c per litre to take into account the “shoulder milk” or seasonal supply of milk. I think that is a good step forward. The 10500 shareholders and farmers who represent Fonterra and who also represent something like 25 percent of this country’s export earnings will be happy to hear that that has happened because there was a subsidy previously. I commend the bill to the House. 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I stand to take a brief call on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill on behalf of the Greens. I should also start by making a declaration of interest. I am not a shareholder of Fonterra but I am a fan of Fonterra even though at times I have been quite critical of some of Fonterra’s water issues. Fonterra is one of our most important companies—in fact it is by far our most important company. Fonterra is a producers’ cooperative. I think that a lot of New Zealand industry could learn from the cooperation that dairy farmers have shown and the effectiveness of the producers’ cooperative when competing in the global market. However Shane Ardern’s point is right: the proportion of milk exports that Fonterra controls is now down to 84 percent and that reflects the changing nature of the dairy industry in New Zealand. 
Two different groups in the industry take advantage of the regulations within this bill. One group which the Greens are very fondly disposed towards are the small New Zealand producers that further process raw milk and add value to it whether for the domestic market or the international market. Those smaller New Zealand producers make a very positive contribution towards the New Zealand economy and we are very supportive of regulations that ensure they get raw milk at a competitive price. 
However another group of much larger producers which is increasingly foreign-owned is taking advantage of the raw milk regulations in order to access cheap milk. They have to be subsidised by Fonterra shareholders and for that reason we certainly support the changes in this legislation that give Fonterra and its shareholders a much fairer price for their milk than under the current arrangements. The current arrangement means that the foreign-owned processors are basically getting a subsidy from New Zealand dairy farmers and the Green Party thinks that is totally unacceptable. The reason this is particularly pertinent at the moment is of course the large foreign interest in buying up the New Zealand dairy sector. That is happening both at the processing level and increasingly as we have seen in the most recent applications in terms of dairy land. It is quite critical that as these large foreign firms look at buying up the New Zealand dairy sector we provide some protections to Fonterra so it does not find itself having to provide subsidised milk to Chinese Government - backed processing firms so that those companies can export that product back to China. 
It is important to note as foreign intervention goes into the New Zealand dairy sector that it is not just any old competition. We should not treat it as just another capitalist company coming into New Zealand. In fact these companies are often backed by the Chinese Government which has made it very clear that it expects Chinese companies to buy up agricultural land overseas and has given directions for Chinese companies to do that. When Fonterra finds itself competing with these companies and having to provide them with milk at a regulated price these are not just regular everyday any old companies that are trying to make a profit around the world. These are companies that often have the backing of the Chinese Government which is of course a totalitarian State. The Chinese Government recently locked up some people from Rio Tinto because the attempt by Chinalco the big Chinese miner and processor to buy Rio Tinto was turned down. 
It is very important to realise that we are dealing with some very aggressive competitors that are trying to take over the New Zealand dairy sector and take advantage of whatever regulations we have in place. It is quite important that we change the regulatory structure using this bill so that a fair price is paid to Fonterra shareholders. I think that we probably need to look a little bit further. In my view it is only fair that we should discriminate between smaller scale New Zealand processors and large-scale foreign processors. I stand to be corrected but my understanding is that within this bill as it currently stands we do not discriminate between providing milk at a regulated price to small-scale New Zealand producers and large foreign-owned producers. 
It seems to me that it is not in New Zealand’s interests to force dairy farmers to provide raw milk at a regulated price to our foreign competitors—often backed by the Chinese Government and others—that are coming into New Zealand in an attempt to undercut the New Zealand dairy sector. Given the dominance of Fonterra within the market I certainly support providing milk at a regulated price to smaller scale New Zealand producers but I am not at all supportive of the situation where the dairy farmers of New Zealand should be made to subsidise and support the large foreign multinationals backed by the Chinese Government in their attempts to undermine the New Zealand dairy sector. 
Fonterra is a fantastically successful example of cooperation. It is a fantastically successful New Zealand cooperative and company and it has played an enormously important role in the New Zealand economy. These regulations will continue to help Fonterra to do that job but I think we need to future-proof these regulations and to look at how we will deal with the continued attack and intervention by large foreign multinationals that are trying to undermine our cooperative. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 It is an honour to speak on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. This bill has been supported by every member of the Primary Production Committee and I acknowledge and applaud the chairmanship of Shane Ardern. As he said he is a farmer and a shareholder in Fonterra. He disclosed that up front and he has done a really good job. 
This legislation is so important because we are dealing with New Zealand’s single biggest industry. The dairy industry produces 25 percent of our exports and that is not something this House should trifle with. Any change in or consideration of the dairy industry that comes before Parliament should be considered very very carefully. Fonterra is also our only truly multinational company owned by New Zealanders. All the rest of them have large shareholdings offshore or they have bailed out completely. This is one multinational that is owned by New Zealanders for New Zealanders and it produces 25 percent of our exports. 
Fonterra is so successful that it controls almost 40 percent of international tradable products in the dairy industry across the world. That makes it a considerable player in the world of food exports across the globe. It has huge potential and that is something that we must realise if this country is to go forward. Nokia is to Finland as Fonterra is to New Zealand and we must keep it that way. 
This legislation deals with at most 5 percent of the milk produced in this country. However it is a 5 percent block of milk that is either sold at higher value through domestic consumption or goes into many value-added products. I think Fonterra and its managers and officials should be reminded that they are not the success story; in fact they have built on the success of the New Zealand Dairy Board and its predecessors in the dairy companies. There are many senior executives who think that they themselves have created this amazing company but they should be reminded on a regular basis that it has been built through the good work investment and wisdom of New Zealand dairy farmers and they have an obligation to ensure that Fonterra stays in the hands of New Zealand farmers as well. 
It is 5 percent of the milk produced in this country that we are dealing with and a number of speakers have talked about what we are doing here. Effectively we are setting up an auction system for the up to 5 percent of milk that was addressed through the original formation of Fonterra to ensure that we had competition on the local market that dairy farmers were able to enter and exit Fonterra that there was some balance to the monopoly position that the dairy board was in as the buyer of milk from farmers and the exporter and seller of milk products that there was not an abuse of that monopoly power that we had some competition in the domestic market so consumers in New Zealand had fair prices for dairy products and that farmers were not locked into an organisation that might not pay them a fair price for their milk. 
It has been quite a process and this legislation is an evolution of that domestic supply situation. I have to say that it is a bit late in coming to the House. The National Government for all its rhetoric in saying that it supports farmers has mucked around—to use a rural term—on this issue. Mr Ardern knows that. The Minister David Carter came in and could not quite grasp the problem. The previous Minister Jim Anderton had done a lot of good work. He had got to the point and recommended that an auction system be put in place. It should have been in place for this season but the Minister came in and hesitated and procrastinated. He did a U-turn as the National Government has done in a whole lot of areas and decided that we could not get it in place this season so we will bring in a new pricing structure. 
Hon David Parker 
: For a year and a half. 
Hon DAMIEN O’CONNOR 
: Well a year and a half is a short time for the National Government to procrastinate believe me. The Government will do about two or three U-turns in that time. Anyway thankfully we have got back to a sensible situation here which is why the select committee and all its members have supported the bill going forward. 
In passing this legislation I think it is important in a second reading speech to mention the likelihood—in fact the strong possibility—that we will have other legislation in this House dealing with Fonterra in the near future. Fonterra has just announced that it is about to start discussions with farmers on a capital restructure. A lot of farmers are not quite sure what this means. They have been told and there are many people running around the country saying that Fonterra needs more money to grow the business. That is true. I have to say that Fonterra and the New Zealand Dairy Board have done very well so far. I do not think there is an industry that has grown so steadily so sustainably and so profitably as the dairy industry has. Do members know how they have done it? Through caution retained earnings smart investments and not allowing its debt to get out of control. 
I have to say that the new management of Fonterra has allowed debt to slip out beyond the level that is comfortable. They should have retained the earnings in the year that they paid record money to the farmers. They should have retained a billion dollars of that money on their balance sheet and they would not have had an issue. But they chose not to and I do not think they deserved a bonus that year. But that is by the by. We have moved on. We are likely to have legislation in this House supporting a capital restructure if the farmers deem that this is necessary. 
Before this House agrees to any change we should look very carefully at Fonterra its success and its importance for New Zealand and in the international tradable market for dairy products. There has recently been a report from Desiree Reid who is a Nuffield Scholar. She is one of the smartest brightest leaders in the dairy industry. She is currently in Ireland and Europe looking at the dairy industry and she has reported back. She has visited Irish farmers who are working hard to replicate our low-cost pasture-based advantage. They are using our crossbred genetics and all of our wisdom to try to catch up. But they have said that Fonterra is the jewel in the crown of our dairy industry. 
There are proposals to recapitalise Fonterra because there are claims that it does not have enough money to grow. I am not quite so sure about that. The question is why people would be doing it if that is not the case. Well there may be some people who think for philosophical reasons through blind ideology or whatever that we need just to get some outside capital into Fonterra. I say to this House and I think the dairy industry should say to this House: “Don’t mess with us. Don’t mess with success.” If Mark Weldon John Key or others think that there is a need to bring in outside capital outside control and ultimately outside ownership into Fonterra then they should be warned. I think farmers will dig in for a big fight. 
I cannot help but mention a situation that the Prime Minister finds himself in. He is a big investor in a company called Dairy Investment Fund which is a private equity investor focused on deregulating the dairy industry to quote the  
New Zealand Herald  
of 2008. I am not sure what the Prime Minister’s current situation is. But before we do anything else to the dairy industry before we pass any further legislation—in fact even before this bill is passed—he should disclose in this House whether he is still a major investor in the Dairy Investment Fund. There are vultures waiting out there to take control whether they be Chinese whether they be New Zealanders or whether they be any other people around the world. If control of Fonterra is taken from the dairy farmers in this country we will see that control slip offshore. 
Fonterra is our multinational company. It is the most successful industry in this country. It is very important that this legislation that we are passing dealing with only 5 percent of the milk is sound—I believe it is and that is why Labour supports it—and that any other legislation we bring to this House is sound also. 
COLIN KING (National—Kaikoura) 
: 
 It is a pleasure to speak in the second reading debate on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. I must acknowledge the experience that is in the Primary Production Committee both the chair and the previous chair and also other people within the agricultural industry. The point I want to make—and I will not take too long a call because I think the matter has been canvassed pretty well—is that we listened to submissions and the submitters were a number of the processors who take milk that is made available under regulation and legislation. There are 600 million litres available. There are 21 processors that take milk. Out of those 13 take 4 million litres or less so that is quite a few. 
The argument from the submissions really came down to whether there was justification for the principle of a Fonterra farm-gate price plus 10c per milksolids. It is clear that the evidence came down on the favourable side—that that should be the way it is run. The premium on the farm-gate price is because of the seasonality of milk production. It was important to square up those shoulders. There is a mechanism for an auction system in this bill and on that basis we look forward to that being progressed at an appropriate time. No doubt the Minister of Agriculture was given sound advice that there needed to be more work done on that. We look forward to that being progressed and this bill makes that provision. I look forward to the Committee stage of this bill to examine some of the clauses that have been introduced. I take pleasure in commending this bill to the House. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 I rise to support the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. In saying so I am delighted to acknowledge my colleagues in the Primary Production Committee. The select committee is chaired by Shane Ardern and I must say that he does a good job. 
Hon Damien O’Connor 
: He should be the Minister. 
Dr ASHRAF CHOUDHARY 
: Indeed Damien O’Connor took the words from my mouth. Shane Ardern should have been the Minister of Agriculture because he does a good job on the committee and I thank him for that. 
In talking about this bill I will say a few words about the dairy industry. The white gold that we have in New Zealand is well known around the world where as has been said before Fonterra exports 80 percent of our milk. We earn about 25 percent of our export income from the export of dairy products including milk which are very well known around the world. The main purpose of this bill is to replace the current regulated pricing formula that we use with a new formula which will include 10c per kilogram milksolids. This bill will also allow an auction system to be put in place in the future. 
John Hayes 
: An auction system for visas? 
Dr ASHRAF CHOUDHARY 
: I will leave the member’s comment there. We are talking about 600 million litres of milk or 5 percent of our total milk for auction. The key thing is that the new regulations allow for fair and efficient pricing for regulated raw milk and they ensure that the excess demand for regulated raw milk is managed efficiently. The regulations also remove any uncertainty from market conditions for people who are suppliers particularly for those who process the milk. So it is important that the regulations are upgraded for the future of our dairy industry. 
The committee received 11 submissions on this bill and we heard nine of them. Of course many of them supported this bill. However there were some small players in the processing area who did not quite agree and were not quite happy with this bill. In particular Green Valley thought that the proposed auction system would create ambiguity in the milk market and was not sure what would happen. It was concerned about the impact of the auction system on the price paid for milk and also about a possible increase in risk for independent processors and local market operators. Clearly Green Valley was a bit concerned about the impact of the auction system. Similarly Cadbury’s had some concern. It thought that the auction system may not be equitable for all the players and it wanted the opportunity to have input into the consultation process. 
This bill is supposed to become an Act by tomorrow—by 1 April— 
Colin King 
: In 2 days’ time. 
Dr ASHRAF CHOUDHARY 
: Of course yes the date here in Parliament under urgency is a couple of days ago but this bill is supposed to become an Act on 1 April. In a way it shows that this is a lazy Government. It has left it until the very last moment to pass this bill under urgency at midnight tonight. 
This is a useful bill for the industry to ensure that we have a fair and equitable system particularly for the auction of 600 million litres of milk. Fonterra and Federated Farmers supported this bill. On this side of the House we are delighted to support the bill going forward given that our dairy industry is well known around the world and we are the largest exporter of milk and milk products. At the same time the other day we were talking about the perception of dairying when we discussed the Animal Welfare Amendment Bill. We have to make sure that our dairy industry is well perceived around the world including potential news about the treatment of animals. We talked about cruelty to animals. We must make sure that those issues are dealt with properly and in time. This industry is a major source of income for New Zealanders—25 percent of our income comes from dairy industry exports—and we have to make sure that overseas markets perceive the industry here to be clean and green and that potential issues of dirty dairying and animal welfare are dealt with before any bad news gets out to the market. 
The food safety issue is particularly important. It is important that in relation to our food safety regulations around the manufacture of foods particularly in the dairy industry and the meat industry importing countries are sure about the quality and safety of the product they are receiving. We have heard about some of the issues such as melamine in China and similar problems. They are not good news for New Zealand. We need to make sure that the milk products we export are well regarded and continue to be well regarded for the future of this country. 
As an agricultural scientist I can foresee the markets gaining a big momentum particularly in China and elsewhere in Asia. We will soon have a free-trade agreement with Hong Kong and other countries. We are in the process of it right now. In my view the dairy industry is the industry that we have to protect and enhance particularly in relation to research and development. Unfortunately when this Government came in it scrapped the Fast Forward fund we had for research and development. 
Colin King 
: Be constructive. 
Dr ASHRAF CHOUDHARY 
: No I have to be honest about that. I think that this Government has taken a very short-term view on research and development. The $700 million we had put in that fund was money allocated for research and development particularly in pastoral farming. I think we need to invest a lot more money into pastoral farming because our future is dependent on the goal I mentioned. I think that the farmers on the other side of the House members like Shane Ardern understand that. Unfortunately another MP has been a bit of a disappointment. Phil Heatley was one of our students at Massey University but he has been a disappointment. With those few words I commend this bill to the House. 
SANDRA GOUDIE (National—Coromandel) 
: 
 I am delighted to take a call and concur with my colleague across the House Ashraf Choudhary that Shane Ardern is an excellent chair of the Primary Production Committee. We all work so well together because we all fully understand the importance of agriculture and that it is the backbone of New Zealand’s economy. 
Although the Dairy Industry Restructuring Act is meeting most of its intended purposes the 2008 review of regulations found that the regulated price formula was flawed. This formula requires Fonterra to sell raw milk at a lower price than it pays farmers for the supply of raw milk. That was never the intention of the regulations and we needed to change it. The bill ensures that the price paid by independent processors for raw milk is the average price that Fonterra pays its farmers for the supply of the milk and includes the additional cost to Fonterra of supplying a uniform supply profile to independent processors across the season. I hope members all understood that. This price ensures that Fonterra is fairly compensated for supplying the raw milk. I wanted to take just a short call on that. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 As a member of the Primary Production Committee I am very pleased to take a call on the second reading of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. Labour supports this bill. It flows on from the dairy industry restructuring that we as a Government undertook some 9 years ago. I concur with the comments made about the chairing of the select committee by Shane Ardern; he does a good job as chair. Perhaps he should be the Minister of Agriculture and perhaps Colin King should be the “Minister for Small Grains and Seeds” in support. 
The main purpose of this bill is to replace the current regulated pricing formula that independent processors pay to Fonterra for farm-gate prices and to add a premium of 10c per kilogram of milksolids. I should say at the outset that I do not need to declare a conflict of interest on this issue. Unlike Shane Ardern I do not have an involvement in the dairy industry but I guess I do have a connection of a kind that I need to declare. My daughter is getting married on Saturday. Her husband-to-be is the son of a dairy farming couple from Northland who have recently retired. They are good people. They are not of my political persuasion but they were loyal Fonterra suppliers. There is a little irony in all of this. Over a couple of glasses of wine one night after we first met I remarked that Fonterra was a good socialist organisation and the parents baulked somewhat at that description. But as I reminded them the dairy farming industry was in dire straits in the 1930s because of the activities of the then party in Government which was the predecessor of National. Mickey Joseph Savage and the Labour Government came in and delivered loans to that industry. They provided guaranteed minimum prices. They supported the expansion of the cooperative system. A good socialist system has seen that industry grow and grow to the point where today it is our biggest single export earner and that is a great thing to see. 
I have to declare my support for Fonterra. It is 100 percent New Zealand - owned and long may it continue to be so. We would rue the day when there were changes that saw foreign capital flow into Fonterra because it would start a whole chain of events that would I think be potentially cataclysmic for New Zealand. I acknowledge that Fonterra has led the growth in the dairy industry in my region of Canterbury and Southland. That might sound a little curious coming from somebody who is known to hold very very strong views in terms of issues such as water quality. But whatever issues we have about water quality certainly in any contact that I have had with Fonterra and its leadership not one person in the senior team has ever been anything other than absolutely committed to improving the current water-quality in my region of Canterbury and to working with Fonterra’s farmer base to try to lift that quality. If we have a New Zealand - owned entity like Fonterra I think we have an odds-on chance of getting the balance right even with regard to the less positive events in the House earlier today. The Dairying and Clean Streams Accord with Fonterra may not be delivering the sort of progress that we want to see but it is certainly a lot better than nothing. I commend Fonterra for its support. 
There is certainly a question as to whether we would see the same sort of commitment if we moved to an industry with a strong and growing profile of foreign investment. It is a valid question to be asked and I pose it in the House. I believe that the commitment over the generations to New Zealand of the farming cooperative system that Fonterra represents is the sort of commitment that represents outcomes in environmental values as well as the bottom line. I think that is truly important because Fonterra is the jewel in our economic crown. It is our single biggest export earner. It level pegs at times with the tourism industry one has to acknowledge. Obviously there are some tensions between those two industries that we have to get right. We want to see both do well in respect of our revenues and export income receipts. But I think New Zealanders need to know where the Government will stand on the issue of Fonterra’s capital base. I ask the Government whether it will take a position of following market ideology and whether we will be seeing a public float of Fonterra’s shares. I think that would be a really backward step. The pressure is on. We have seen proposals to float those shares on the sharemarket which luckily the Fonterra stakeholder base has managed to thwart but the issue will come up again. I think we want to see Fonterra held in New Zealand hands and using its own shareholder base as the way to create some new capital for it. 
There has been considerable commentary in the last week about the Chinese company with a billion and a half dollars to spend on the purchase of New Zealand farms and infrastructure. I believe that one of the intended targets for it would be the Synlait company based in Dunsandel which was set up as one of the offshoots of the dairy restructuring changes that we introduced as a Government back in the early 1990s. I visited Synlait last year and as somebody with no deep understanding or knowledge of the dairy industry or how it operates I have to say that I was surprised to see Fonterra tankers pulling in and out of the Synlait plant in Dunsandel as well as Synlait’s trucks although I think the Fonterra trucks outnumbered them. It was explained to me that that was the basis of the dairy restructuring—Fonterra was obliged to supply milk to Synlait. 
We now begin to understand through this bill that the basis of that has been uneven. It has been tilted a little too much in favour of the competition that the Dairy Industry Restructuring Act provided for and this bill brings back some measure of balance to the equation. Competitors will pay a premium of 10c per kilogram of milksolids to ensure that they are given competitive reasons to provide their own facilities rather than simply if you like milk the tit of the Fonterra machine. 
One of the concerns that I have about the future of the industry relates to the Overseas Investment Office. Last year one of the first acts of this Government was to weaken the overseas investment rules. I think that is a concern. We all acknowledge the role that foreign capital has played in the creation of our nation and the role that it continues to play. We are not talking about shutting the gate but we have to be judicious about the way that we allow foreign investment to flow into this country as any other nation is. If we were to see further loosening in respect of our dairy industry then I believe that would be detrimental to New Zealand’s interests. At the moment I think the landscape is tilted in favour of foreign investors anyway because our monetary policy settings give them interest rate advantages over other domestic New Zealand capital. It brings to mind the call that Labour made about having some reconsideration of current monetary policy settings. 
I was interested to hear the comment from Shane Ardern about the percentage of exports that Fonterra now commands—84 percent was the figure he used I think. That surprised me a little given that we know Fonterra still holds about 92 percent of the industry in terms of the milk flows. Obviously the Dairy Industry Restructuring Act created competition. It is truly there in place. This bill is trying to make sure that those supplies of raw milk do not continue to give rival companies some sort of competitive edge and that we have a flow through the season that does not see them given all the benefits of being able to buy through the season at prices that are not available to Fonterra—they obviously enjoy the peak of the season prices. 
In conclusion I note that this bill makes a change to the wholesale milk price. It adds 10c per kilogram of milksolids. I think that is a sensible solid move towards assisting Fonterra. It is a rebalancing exercise. It is an appropriate way to try to ensure that we maintain this jewel in the crown to keep it functioning to keep it producing and to keep it delivering export receipts for New Zealand. Yes we want the competition there; it has a place in the market. But we do not want the field tilted in such a way that we give an undue competitive advantage to other organisations some of whom currently—let us be blunt about it—certainly have more foreign shareholding than Fonterra we hope will ever have. 
CRAIG FOSS (National—Tukituki) 
: 
 The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill is a good bill and I commend it to the House. 
Bill read a second time. 
In Committee 
Hon SIMON POWER (Acting Leader of the House) 
: 
 Following agreement in the Business Committee I seek leave for all the provisions of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill to be taken as one question. 
The CHAIRPERSON (Eric Roy) 
: Leave is sought for that purpose. Is there anyone opposed to that course of action? There appears not. Leave is granted. 
Clauses 1 to 6 and schedule 
Hon DAMIEN O’CONNOR (Labour) 
: 
 I guess that this gives us the opportunity to go through the nitty-gritty detail of the legislation which we have all agreed we support. Once again I have to raise what I guess is the urgency of the situation. As the Acting Leader of the House probably knows and as the Committee definitely knows unless we get this legislation passed by midnight the dairy industry will be in trouble. It is not quite sure how it will then supply milk or what system it will use to supply milk—up to 600 million litres of milk. Actually I do not think that too many people out there will understand how much 600 million litres of milk is. It is a hell of a lot of milk and producers want to know what they are to do with it. 
Shane Ardern 
: It’s a few tanker loads. 
Hon DAMIEN O’CONNOR 
: It is a few tanker loads and if it is not dealt with properly it becomes a huge burden and one might say an environmental dilemma. 
I will take the opportunity to go back to the regulations. The legislation was passed in 2001. In 2008 through that process we became aware that there were difficulties in pricing the milk for the people buying it—that is Cadbury’s Open Country Cheese Co. and Tatua. It was not the Westland Cooperative Dairy Co.—not yet anyway. All the companies purchasing it for value-added purposes for the most part or for domestic milk supply were not quite sure whether they were getting a fair deal whether they were paying too much whether Fonterra was getting ripped off or whatever. 
In Labour’s wisdom as we always were wise as a Government we conducted a review. It identified three main issues. Firstly the wholesale milk price formula systematically underpriced regulated raw milk—that is the farmer-supplier shareholders of Fonterra were effectively subsidising the companies that purchased the milk from Fonterra. They could get on the phone ring Fonterra and say: “We want a tanker load of milk.” which is a huge privilege for any business dealing in a perishable product. They could do that then not ring for a week or two but Fonterra had to process that milk that kept coming out of the cows’ udders. 
We must understand—and many out there probably do not; a lot of young kids think that milk comes from bottles which is understandable if one has been brought up in the city—that cows need to be milked twice a day. In fact there is one farm down in Oamaru milking 2.7 times a day but we will not go into the detail of that. In very efficient production systems it is up to three times a day. For their own welfare cows need to be milked. The milk has to be taken from them and processed somewhere; there is an obligation on Fonterra to do that. The original legislation said that it had to take the milk from the farmers who were supplying it. The companies that wanted up to 400 million litres or up to 500 million litres as it was at the time could ring up and get it when they wanted it and not get it when they did not want it. That placed a huge burden on Fonterra and its shareholders to build the stainless steel with the potential to process that full amount of milk when it might come from the cows in the peak of the season not knowing whether someone would ring for a tanker of milk or not. That is a huge impost on the system. It is a cost and the review of the regulations conducted by the previous Labour Government identified that those people were getting the milk cheaply. Understandably the farmers were getting pretty agitated about that. They could have got another few cents a litre or a few cents per kilogram of milksolids for the milk they supplied to Fonterra. So there was a need for the Government to do something. 
The second thing discovered is that there was no system for managing the excess demand by independent processors for regulated raw milk. Some of those businesses grew and wanted more milk. They did not know whether they could come to Fonterra and get that milk or whether Fonterra would just say: “No sorry; go away.” Obviously that would place constraints on their ability to grow businesses that were often adding really good substantive and sustainable value to our milk in this country. We wanted to enhance that— 
The CHAIRPERSON (Hon Rick Barker) 
: Before I call the honourable member again I just say that this is the Committee stage of the bill. We are addressing the nuts and bolts of the bill. This is slightly different from previous debates. This bill has been to a select committee and has come back with a select committee report. I know we are going across the bill but I want to start as we intend to continue and not have wide-ranging speeches. I just want to bring the member to the contents of the bill. 
Hon DAMIEN O’CONNOR 
: Thank you Mr Chairperson; I respect that. I guess I am trying to give some context to a bill that for many people seems to be rather minor but a huge transfer of wealth was taking place and that needed to be addressed. Everyone in this Chamber who has any connection to the dairy industry knows that farmers were demanding it but farmers are disappointed that it has taken so long to do it. 
The legislation that was drafted and put to the Primary Production Committee did not require a huge amount of amendment because I think we had all agreed that we needed to address the issues. The third issue identified in the review was that there was an unmanaged transition risk associated with the prospective ending of the Fonterra statutory obligation to supply raw milk. At some stage those people building their businesses could actually have lost all supply so we had to bring in a fair system. 
An auction is an obvious way of addressing that and this bill effectively sets up an auction process for raw milk. We applaud that because there were companies involved such as Synlait; New Zealand Dairies which has Russian shareholdings; Open Country Cheese with Singaporean shareholders; Goodman Fielder; and Cadbury’s. All these companies were taking milk from shareholders and we needed to make sure they were paying a fair price for it. 
I will go back to the legislation as you have advised Mr Chairperson and look at some of the submissions that came before the select committee. These are submissions relating directly to the bill. I cannot help but refer to the wise words from the Westland Cooperative Dairy Co. Ltd. That company has stayed outside the Fonterra structure. It is an independent company. It was until recently the second-largest processing company processing about 2.5 to 3 percent of the milk in this country. It decided to stay out of Fonterra. It firmly believed in and supported the single-desk structure—that is that we should have one seller offshore. But it stayed outside because it thought it would lose control of its destiny and be controlled by Auckland which I think was very astute and very visionary of that company and I think that many farmers accepted that. That company came to the select committee brought its submissions and it was upfront and honest. It supported Fonterra’s position that there should not be an obligation to continue to supply up to 600 million litres of milk to those companies. Fonterra believes that time has moved on and that many of the companies taking milk should be working on a process of ensuring their own supply. I agree with that. If companies are big enough and mature enough—be it Open Country Cheese Synlait or Cadbury’s—they should sit down and negotiate with farmers to secure supplies. 
Hon David Parker 
: That’s what Cadbury’s used to do. 
Hon DAMIEN O’CONNOR 
: Cadbury’s used to do that; there is no problem. In fact if companies are truly developing value-added products then they are in a position to offer a bit more to farmers and should be able to secure regular supply in normal commercial arrangements. So Fonterra believed that and Westland came to the select committee and supported Fonterra absolutely because Westland is a fair honest and very astute dairy company I have to say—not that I am of course praising people— 
Hon David Parker 
: Director Mr O’Connor? 
Hon DAMIEN O’CONNOR 
: No I have no vested interest; I am not a shareholder in any way. I have brothers who are and a father but I am not in any way a contact. Westland also said however that if we are intent on continuing with this structure then it will apply for milk which seems a little bizarre given that that company actually objects to the whole set-up anyway. But it said that it was in its commercial interests—and it has an obligation to its shareholders to maximise returns—to ring up Fonterra and ask for tankers of milk to be supplied in Hokitika. Of course it will pay for transport but it is still worthwhile for it to do that because being able to square one’s supply curve—that is fill in the gaps and get consistent supply into one’s factories—is invaluable in any large processing structure. 
There is a value in that that had not been assessed by Fonterra or those purchasing. I thank the Westland Cooperative Dairy Co. for its honesty because it did help the select committee and I guess reinforced the view that we need to move towards an auction system where the market will identify the true value and we will not be attempting by regulation to set a fair price on a commodity—milk—the price of which fluctuates on a regular basis in the international market place. In fact it fluctuates quite a bit domestically on the basis of those international prices. So I hope that Westland does not have to continue to access milk from Fonterra because it will be a transfer of wealth from Fonterra to Westland shareholders. Maybe that is quite a good thing actually but anyway I have to thank them for their submission. 
There were a number of other submissions one from Federated Farmers which I have to say was fairly consistent. They still believe that the market will deliver everything without regulations. I think it is a little naive of them but they do understand that there was a dilemma and their farmer shareholders were searching for and seeking a resolution to this. I have to tell them they are getting it a year later than they should have because of the National Government’s procrastination and that is unfortunate. It is not because the select committee sat on its hands. We moved immediately. We heard submissions. We processed this as quickly as we could and I think we have done a pretty good job with it. 
I will refer to just one other submission which was from Open Country Cheese a large and growing company in this country. It has concerns. It has enjoyed the benefits of accessing milk. I think it is prepared to accept that an auction system will be the fairest way for it to move forward. But it has views too around the capital restructuring of Fonterra—the next step that we will see in this House—and how it thinks that it may lock farmers into Fonterra. That is not the intention of this House and was not in 2001 when we passed the legislation. Farmers need to be able to come and go. Land use needs to be able to change although in my humble opinion there is a loss of value to this country of continued land use change and a waste of capital. But I think we will look at that in hindsight—[ 
Interruption 
] Of course if that Minister Steven Joyce gets his way Fonterra will be listed on the stock market his friend Mark Weldon will be enjoying a slice of the action when the shares are bought and sold and he will be patting himself on the back saying what a wonderful thing he has done for New Zealand agriculture. In the end as the stock market has done before time and time again those shares will disappear offshore but Mr Steven Joyce has no fears about that. It does not worry him who owns New Zealand as long as there is someone around making a slice on the transactions as those shares come in and out. That is the warning that I have. 
The detail that the select committee has worked through on this legislation has been done because the chair and the committee members are firmly of the view that we are doing this to improve the situation for the dairy industry in the belief that it will remain in New Zealand hands. If we were—and I think we have checked and double-checked—making a mistake by bringing in an auction system that will better facilitate the capital restructuring and will allow shares to be traded on the stock market then I would not vote for this piece of legislation. But I think that in the staged way that we are approaching this this is a good piece of legislation. 
The technical details in this bill—which I have not dwelt on too much I have to say even though this is the Committee stage—I think are all sound. We have amended through clause 4 section 115 which deals with the issue of auctions and what may be required. The Minister of Agriculture will have the right to set a reserve. There are some concerns about that. The chief executive of the Ministry of Agriculture and Forestry—and I see some officials in the Chamber who I am sure will be listening carefully—is required to maintain the auction system. The chief executive is required to maintain a sound fair and honest auction system. That does not always occur when there are a couple of big players and some small players. That is why the concerns that some of the smaller players had have been addressed and there will be a certain amount of milk available for smaller players—I think it is up to 40 million litres. So if one wants to start a little cheese factory then one will be able to bid at the auction and one will not have to compete with Open Country Cheese Westland Dairy as they might bid into it Synlait or the Russian-owned companies as who knows what foreigners may come into this country the Chinese or anyone else. Opportunities for small innovative entrepreneurial New Zealanders have been protected with the set-up that we have and the changes we have made. 
New section 119A has been inserted to allow regulations to be made under the Act. We need some protections to ensure that there is decent consultation. We have dealt with those technical issues as best we can in the bill. Maybe one of the Government members or the chair of the Primary Production Committee can get up and give us an assurance on that. I feel comfortable with it. We have to make sure that the regulations that this bill allows do apply and that we can have a fair and honest auction system. Thank you. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 I rise to highlight two points in particular. One is about what Fonterra wants out of this and one is about the concerns expressed by other players in the dairy industry about how the Minister of Agriculture and the officials will handle those situations. Fonterra believes that the auction system must be limited to no more than 600 million litres of milk. That is its the bottom line. Also it wants the reserve price to be at least 10c per kilogram of milksolids and to set the seasonal value of the milk. It wants that to be included in this arrangement. But some of the other players the processors like Green Valley and other industry players like Cadbury’s for example have concerns that the auction system will not be fair and equitable. Also they wanted to ensure that there is consultation prior to the auction system being put in place. I think that is where the concern is. They believe that the new system particularly the auction system will not be fair and equitable to them and they want to have consultation in setting up that system. 
So I would appreciate it if the Minister as a stand-in Minister or the chair of the select committee would take a call and perhaps give some assurance to the small players the processors who are likely to buy this extra milk that the auction system will be fair for them. As I understand it there will be at least 300 auctions per week. So there will be a lot of auctions of milk and if the milk is not auctioned it will be subtracted from the total milk available. So clearly we need to have a system in place that is fair otherwise we will be back in this House asking for changes to be made. Small players in the industry have some concern about this issue. Clearly there is a concern that Fonterra will not be fair to processors and will want to charge 10c for a kilogram of milksolids at a seasonal value. Some of them are suggesting that this is an unnecessary extra cost they have to pay. I would be very keen for Shane Ardern or the Minister in the chair to be able to give an assurance to processors that they will have a fair go if you like once this auction is put in place by 1 June of this year. We want to make sure that all players in the “white gold” industry in New Zealand which is well regarded overseas have equitable access to available milk and that they feel they are part of the restructuring of the industry. 
As my colleague Damien O’Connor has said other bills are coming through regarding the capital restructuring of the industry. We must make sure that this bill and particularly the auction system is fair to all parties. At the moment we have an online auction of milk sold overseas which I understand is working very well. In the local situation we need to have an auction system that is fair to all players. 
Hon Dr NICK SMITH (Acting Minister of Agriculture) 
: 
 I will take only a brief call on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. I know that members will be nervous that I am the Acting Minister of Agriculture particularly colleagues of mine like Shane Ardern who are far more knowledgable than me on such issues. There is a healthy tension between me and the Minister of Agriculture. 
There are two points that I want to answer. Firstly a very reasonable point has been made by Ashraf Choudhary on the auctioning system the number of small players and what reassurance they can be given that the auctioning system will be fair to those businesses. I reassure him that the law requires a process of consultation by the Ministry of Agriculture and Forestry. If the Minister of Agriculture wants to use the regulating powers that the bill provides that process of consultation will provide some reassurance for those players that it will be fair. 
Secondly I will also make a brief comment about an amendment to clause 2 that has been tabled in my name. I confess that it is an area of the bill that I do understand properly and that is the date of commencement—that is something I can cope with. The issue is that the Governor-General will not be available to sign this bill tomorrow. The commencement date currently in the bill reported back from the Primary Production Committee is 1 April. The amendment simply changes the date of commencement from 1 April to the date of Royal assent which is likely to be the beginning of next week. It is a pragmatic little response. My big contribution to agricultural legislation will be getting the date of commencement right on the bill. 
Hon Damien O’Connor 
: Outrageous! 
Hon Dr NICK SMITH 
: It is an outrageous decision. I assure Damien O’Connor and other members of the Committee that that will probably be the extent of my contribution to agricultural law in this House. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I follow in sequence from the Minister in the chair the Acting Minister of Agriculture in acknowledging that I am no expert on the dairy industry either. However we are partners in crime in respect of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill as we go through the Committee stage. 
I will comment a little further on the current beneficiaries of the raw milk pricing system. A number of those are present in the market place one of which is the Synlait dairy factory in Dunsandel. I understand that currently it has a shareholding owned by Mitsui of Japan of 22.5 percent. I have talked about its plans to quintuple production so obviously it will be seeking to expand greatly. The details of this bill will be important in terms of Fonterra being able to ensure that in the future its supply to that dairy plant in Dunsandel is done so on an equitable basis. 
New Zealand Dairies will be a dairy company known to many members in relationship to the Studholme family who started it but its total shareholding now belongs to a Russian company called Nutritek. That plant is at Waimate near the Waitaki River and the growth in the dairy industry has fed into that plant. 
Open Country Cheese is a Waikato-based dairy company. Amongst its shareholders is a former Deputy Prime Minister one Wyatt Creech who is known to the Minister in the chair at the moment. Olam International a company from Singapore is a major shareholder there. 
We also have the Cadbury’s factory in Dunedin a proud institution on the Dunedin landscape. Britain is the major shareholder or I think wholly owns that Cadbury’s factory. There are two others. Tatua has already benefited from the raw milk supply from Fonterra which is the subject of this bill and I think there are predictions that Westland Cooperative Dairy will in the next season also become a recipient of milk from Fonterra. 
One of the issues that the Primary Production Committee had to consider was the balance. It considered whether Fonterra was too dominant and whether it was getting the benefits it deserved from the current system and I guess there was a sense that Fonterra is not the bully over the little guys in this respect. Those smaller players are growing in strength and size and obviously we want a system that balances those interests. Some of those players can hardly be described as small. When we consider that Open Country Cheese collected about 850 million litres of milk last year it is not exactly a small player. 
In relation to the issues of the auction and that option is provided for in future the basis is that although the Fonterra farm-gate milk price reduces the underpricing associated with the current wholesale milk price—and the addition of a 10 percent premium provides an allowance for the seasonal pricing to smooth it out if you like—the fact remains that the current regulated milk remains underpriced. The full value of the seasonal price has been calculated at around 15c per kilogram of milksolids rather than at 10c per kilogram and the 10c premium does not attempt to capture the benefits for the independent processors. They are able to limit the risk to their factories through having a diversified milk supply and they have the enormous convenience provided by effectively being able to dial up a Fonterra tanker. That provides them with enormous financial strength effectively at the expense of the balance sheet of Fonterra. 
The reason to use the farm-gate price is that it ensures independent processors do not purchase raw milk from Fonterra under the regulations at a lower price than the average price that Fonterra pays its farmers for raw milk over the whole period of the season. Therefore employing the farm-gate price to regulated milk establishes a price equivalent of about 4 percent of the raw milk that Fonterra has to divest under the current regulations with Fonterra keeping the price of the remaining 96 percent. We have heard the figure from Shane Ardern that although it takes 96 percent of the milk it provides from that only 84 percent of the exports so that again really enshrines the nature of competition that Fonterra is facing. The price adjustment of 10c a kilogram of milksolids reflects the additional costs to Fonterra in providing what is called a square supply curve which is one that goes right the way across a season. The additional price above the farm-gate milk price is required to ensure a fair and efficient price because that farm-gate milk price reflects the average price paid by Fonterra for a farmer’s annual milk supply profile. 
I reinforce the point that Fonterra is our largest and our only truly large-playing New Zealand private company. Its success is our success. When Fonterra’s milk price drops the economy dips with it. When the milk fat price rises the economy rises with it. Farmers gear up on that milk fat price—sometimes one would have to acknowledge in a rather profligate fashion. 
We know that some of the banks at the moment are doing some restructuring in the dairy industry due to the expansion that a number of farmers engaged upon because they began to believe that prices nudging towards $8 a kilogram would be sustained. That is a foolhardy proposition. Anybody with any experience in the industry would know that prices can range from between $3 and $4 a kilogram and the top end price of I think $7.80 a kilogram which was achieved in the season before last. 
Dairy farmers in the Fonterra structure are given a lot of confidence in the future of the industry. It has been around a long time under various guises. It has had enormous growth. Through this bill we want to ensure that the success of Fonterra which has been a large part of the success of the New Zealand economy continues. We want to see that those who have taken their positions in the market as a result of the dairy industry restructuring of nearly a decade ago are not given golden windows of opportunity and are not having windows shut. I am confident that this bill as it was passed through the select committee process will deliver the sort of balance that we want to see in the New Zealand dairy industry. 
The question was put that the following amendment in the name of the Hon Dr Nick Smith to clause 2 be agreed to: 
to omit “1 April 2010” and substitute “the day after the day on which it receives the Royal assent”. 
Amendment agreed to. 
Clauses 1 to 6 and schedule as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon Dr NICK SMITH (Acting Minister of Agriculture) 
: I move  
That the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill be now read a third time 
. I do so as the Acting Minister of Agriculture on behalf of the Hon David Carter who is currently hard at work for New Zealand’s interests in the all-important opening market of China. I want to acknowledge his work on this bill as well as the very cooperative constructive way in which all members of the Primary Production Committee have helped to move this bill through the House. 
The bill was tabled in the House in October 2009 it had its first reading on 28 October after which it was referred to the Primary Production Committee. The select committee reported back the bill to the House on 22 February 2010.The bill has now had its second reading and passed through the Committee stage with only a very minor amendment in respect of the date of its coming into effect. 
The dairy industry is an integral part of the New Zealand economy. The industry contributed $11.3 billion or 27 percent of New Zealand’s total merchandise export value in the year to March 2009 and the industry continues to grow. As a result of productivity improvements and the expansion of dairy farming over the past few seasons New Zealand’s milk production is growing at around 3 percent per annum and there is great potential for further growth over the next 10 to 15 years. On the back of that strong milk growth we have seen increased investment in the industry through the entry and expansion of dairy processing companies and specialised food processors over the past few seasons. The increasing diversity of business models that have entered the dairy industry provides choice both to New Zealand farmers as well as to domestic and international customers and consumers wanting high-quality New Zealand dairy products. 
The Dairy Industry Restructuring Act has provided the regulatory framework in which new companies are able to enter the dairy processing industry and test the efficiency and the profitability of the different business models. The purpose of the pro-competitive measures contained in the Act was to promote the efficient operation of New Zealand dairy markets to ensure that New Zealand markets for dairy goods and services were contestable. The contestability of milk supply provided incentives for all dairy companies to seek innovative opportunities to drive cost efficiencies thereby improving the value of New Zealand milk and the returns to New Zealand farmers and the wider New Zealand economy. 
Upon the passing of this bill some of the inefficiencies in the current pricing system can be removed so that the dairy processors will be provided with the right economic incentives to source milk directly from farmers where practical rather than under the regulations. By promoting contestability in the market for farmers’ milk this bill builds on the purpose of the Dairy Industry Restructuring Act to promote the efficient operation of dairy markets in New Zealand. This bill allows for raw milk supplied to independent processors by Fonterra under the Raw Milk Regulations to be allocated through an auction system or through any other method. The bill improves upon the Act by providing for more flexibility in the pricing and allocation of regulated raw milk both now and in the future. As the industry continues to evolve the Government needs to have the tools to be able to modernise the regulatory framework in which the industry operates. This bill provides a more modern and flexible regulatory framework for pricing and allocating regulated raw milk. 
I want to pass on the Government’s thanks to the officials and to the industry which has constructively engaged in helping us get to the point of being ready to pass this bill. The bill builds on the objectives of the Dairy Industry Restructuring Act to promote a contestable market for farmers’ milk and ensure that the dairy markets in New Zealand operate efficiently. Yes it is an important issue for dairy farmers but actually the importance of the dairy industry makes this an important bill for all New Zealanders. I commend this bill to the House. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 This is a very good bill if only for the reason that I am sure the Minister for the Environment is a lot wiser about the dairy industry now than he probably was earlier this evening. That is progress. 
Hon Rodney Hide 
: What a nasty thing to say. He’s the nicest bloke. 
Hon DAMIEN O’CONNOR 
: There is someone who certainly needs some education in every area of his portfolio. Perhaps he can learn a bit about Auckland; I am sure he will shortly. 
Labour supports the bill. The purpose of the bill as was stated by the Minister is to replace the current regulated pricing formula for a formula that is fairer to the parties—to Fonterra to suppliers to shareholders and to independent processors. It sets up ultimately we think an auction system. There are possibilities of other systems but the auction system is one that has been investigated. It has been identified as being the fairest to the parties. Minister Smith’s amendment identified once again the fact that this Government has let this bill languish. It has procrastinated it has not realised the importance of the bill and this bill is late going through the House. I suggest it is going through a year later than it should have been but even now it is too late for the Governor-General to sign off so we had an amendment at the last minute saying that the bill will come into force on the day after the date on which it receives the Royal assent instead of 1 April. This is just an example of the mismanagement that occurs from time to time. None the less the Opposition is happy to facilitate the passage of this bill and to agree to it. 
We did look at these issues very very carefully. As Minister Smith said we are dealing with the most important industry in the country. It is a primary industry that has thrived and grown in spite of critics out there saying that it should do better it could do better and we have to restructure and change the whole thing. I say to the House to members opposite to Ministers—in particular Mr Steven Joyce who is an enthusiastic seller of State assets in New Zealand—and to anyone who wants to come along that that is why the Minister assisted with the changing of the Overseas Investment Office rules. We will see whether he stays around long enough for the sale of many many things but hopefully not Fonterra. 
Farmers should be concerned that although we are improving their returns and rebalancing the system of auction for 5 percent of their milk the 95 percent that we are not addressing tonight in this House has to be carefully managed. The returns and the value from that milk have to come back to New Zealand farmers because they are the people who produce 25 percent of the export revenue for this country. 
Colin King 
: 27. 
Hon DAMIEN O’CONNOR 
: It is 27 percent—there it is; it has gone up. It must have gone up in the last few days but anyway 27 percent is a huge chunk of wealth creation in this country. It is not the investors it is the farmers who have made the investment in the land in their stock in their machines in their knowledge and in their commitment as individuals—it is a hard life often—whom we have to ensure we look after because they have driven this economy right through the 1900s and will drive it in the 21st century as well if we get it right. 
The passage of this bill deals with 5 percent of the milk industry. It allows opportunities for independent processes for companies like Cadbury’s and for the cheese producers but it also continues to supply opportunities for growing and larger companies like Synlait like Open Country Cheese and like Westland Cooperative Dairy. The bill provides opportunities for those companies to access milk and that is a privilege in any commercial arrangement. In the interim they pay 10c above market value for raw milk but ultimately it will go to auction we think on the basis that it will offer a fairer deal for all players. 
As I have said we have to get this right. I have some concerns about what will happen next. We will pass this bill and then there will be another one before the House. We will have people advocating for recapitalisation the capital restructure of Fonterra and questions must be asked whether that will assist with the progress that we have made here or whether in fact it will detract from the wealth that can be created and retained by New Zealanders. I say as the Irish farmers say and as Desiree Reid has discovered that Fonterra is the jewel in our crown. It is owned by farmers and the Irish dairy industry is desperately trying to recreate that position. 
There will be people in this House and people who have gone and looked at Kerry Group plc which was once a cooperative owned by farmers and said what a wonderful measure of success it is for the dairy industry. Well I have to say that the Irish dairy industry found very quickly that it has left farmers in a desperate situation. They are receiving the lowest payout of any dairy company and the same could happen in this country. The dairy industry would be ruined if we allowed farmers to be just the takers of the raw milk price rather than the owners the shareholders and ultimately the beneficiaries of a totally vertically integrated dairy system. That is the reason why we have a successful dairy industry that is able to produce 27 percent we are told of our export earnings. That is based on smart carefully assessed legislation. 
This has been the discipline that has driven success in the dairy industry. It has been good legislation. I trust we are passing good legislation now. We worked through it under the wise guidance of the chairman of the Primary Production Committee Shane Ardern who should be the Minister. I have concerns about his ministerial colleagues and what they will bring to the select committee if they are brave enough of course. They might try to divert it to another select committee but I know that Shane Ardern will fight tooth and nail to ensure that any dairy legislation in particular any legislation relating to possible capital restructure will come to the wise— 
Hon Member 
: All-powerful. 
Hon DAMIEN O’CONNOR 
: —all-powerful and astute Primary Production Committee. If it does not there is a danger that people for their own reasons will want to see capital restructure. 
The question I ask as I did in my second reading speech is whether John Key is one of those people. Is he still a shareholder and a major investor in the Dairy Investment Fund? This is a private equity investor focused on deregulating the dairy sector so it can invest in this profitable sector. The question I ask which I know Mr Ardern will ask and will want the answer to is whether John Key is still a major investor in that fund; if so will he declare an interest with the passage of this dairy legislation and any other possible dairy legislation that will be considered by this House? 
I know we have members such as Shane Ardern who are farmers. He has declared an interest up front as a shareholder. But it is the subtle investments through back-door deals such as the Chinese wanting to come into our dairy industry with $1.5 billion. We have had Russian interests and we had Singaporean interests through Synlait. We have a number of overseas interests in the dairy industry and they are growing in both their influence and their power. The question is: if Fonterra goes through a capital restructure and if as many want to see its shares are put on the stock market will John Key still be an investor in the Dairy Investment Fund which will be out there trying to lap up and buy up shares in Fonterra? 
Ultimately the loss of control by farmers will be the demise of the dairy industry. They will end up taking a price for raw milk that will see them just survive and nothing else. That is the experience internationally and that is the experience of the Irish. I suggest to anyone who thinks otherwise to read the wise words of Desiree Reid who has been travelling over there. 
Labour supports the passage of this legislation. It addresses issues around 5 percent of the milk supply in this country and issues around the other 95 percent have to be carefully considered. I trust that we can end up with the same good outcomes. 
SHANE ARDERN (National—Taranaki - King Country) 
: 
 I rise once again in support of the third reading of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. I thank the members of the Primary Production Committee very much for their fulsome support of myself. But I ask them to please lay off because I do not think that it is in the best interests of my political career going forward to be so forcefully and roundly supported by the Labour Opposition. But I thank them none the less; they worked very hard in the select committee where sometimes we had difficult characters before us. We managed to get the bill reported back to the House on time with some reasonable recommendations for the Minister which have been accepted. 
I will recap what the dairy industry in New Zealand in respect of this debate is about. As the Acting Minister of Agriculture said—and I was surprised to hear this myself when he commented; I hope it is correct—the dairy industry now provides 27 percent of our export earnings. It was 25 percent the last time I looked but it is now 27 percent. I am sure that figure is correct because the officials would have given it to the Minister. 
Fonterra is made up of approximately 10500 shareholder farmers. They are hard-working mum and dad New Zealanders. They are the hard-working individuals who own the industry through the shares that they hold and the land that they purchased. They risk their capital and it can be a substantial risk. I know some cases of directors who were about to press the start button on the new factories they had built. Had those plants not operated up to the specification range that they were supposed to operate up to they would have lost their farms. I am talking particularly about the Waharoa site now the Fonterra site in Hawera South Taranaki. It is a 20-tonne-an-hour powder plant that is world leading—the first in the world. That was how it worked. That was the risk they took that was the capital they invested and those were the decisions they made. I have never seen another industry in New Zealand with that type of backbone in terms of that integrated structure—from the producer right through to the market—and investing that type of capital. 
As I said earlier and most people were surprised to hear this Fonterra now represents 84 percent of all milk exported from New Zealand. Let us understand the difference between export and domestic. We seem to be able to understand that the All Blacks playing against the Springboks is different from when Taranaki plays Waikato. But when it comes to trading internationally for some reason we cannot understand it. There is a mental block about the domestic market and the international market. Fonterra exports 84 percent of all the milk processed in New Zealand. Fonterra exports 84 percent not 90 percent not 100 percent and not all these other figures that are put about. Fonterra with 10500 shareholders exports 84 percent of all milk that is processed in New Zealand. Fonterra represents a substantial part of the economy in New Zealand. This bill allows up to 600 million litres of Fonterra’s milk to be made available domestically to competitors of that company—that is what it does. The purpose of the bill is to set a fair pricing mechanism. Some legitimate concerns were raised by speakers from the other side about how fair that pricing mechanism is. It is the Fonterra farm-gate price plus 10c per kilogram of milksolids to recognise the seasonal production curve. 
The Prime Minister has just recently opened in Edendale Southland what is now the biggest powder plant in the world. I think it now processes 27 tonnes an hour. I understand that the specification range of that plant is somewhere between the commodity bottom-end powder which is skim-milk powder at about $1500 to $2000 a tonne right up to the very high-end specification which sometimes can be in excess of about $7000 per tonne. I stand to be corrected on those figures but that is what I understand to be the case. The plant will be efficient—and on paper it is the most efficient in the world—only if we can get milk into that plant for a long enough period. The legislation that we are passing tonight allows competitors of that plant like Kraft General Foods which is the total shareholder of the former Cadbury’s plant in Dunedin to be able to collect milk directly from under that new powder plant in Edendale deliver it to Dunedin and get that milk at Fonterra farm-gate prices in a Fonterra tanker plus 10c a kilogram. 
The debate is whether that process is fair and equitable and that debate will continue. There will be another round of discussions and there is a consultation paper out there. The small processors at the other end of the scale argue that of course they should have access to milk and if they are innovative and if they are developing markets in New Zealand or internationally that will bring a higher return to New Zealand from that process then yes of course they should. That is the balance we have tried to strike. I acknowledge the members of the Primary Production Committee for the work they did and I thank them for their support. I commend this bill to the House. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 This bill the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill is a natural evolution. It follows on from the Dairy Industry Restructuring Act passed by the previous Labour Government. As the previous speaker Shane Ardern indicated in some detail the bill addresses some of the problems in the domestic market supply which came through in the industry review initiated by the Labour Government. The bill will in essence mean that Fonterra’s farmers will get a fair price for the raw milk that they deliver. 
One of the points we want to make is that this bill should have been passed some time ago by this House because it will help to improve the performance of an industry that is the most important industry to this country in many many ways. The dairy industry provides 27 percent of export receipts so for every dollar we spend as a nation 27c comes from the dairy industry. Therefore this bill should have had priority status attached to it. When we consider that this House has debated bills to cut the seats on polytechnic councils for instance instead of considering this dairy industry restructuring bill we have to ask where the Government’s priorities were. This bill was on the back-burner and other lesser bills were given front-status treatment. 
This is a refinement bill: an ongoing refinement of the dairy industry regulations and legislation that Labour introduced and continues to support. It is only one of the larger issues that the Government will face in terms of the dairy industry. At some point the Government will have to bite the bullet and make decisions about the capital restructuring of Fonterra. Last year we saw that the Prime Minister and his good mate the chief executive officer of NZX looked at proposals for quite considerable change in the dairy industry capital structure. They were defeated by the dairy industry stakeholders themselves and that was a welcome move. But that issue will come back and I think that sooner or later the Government has to give some signals as to what its position will be. It has to think very very carefully about those issues. 
Fonterra is our only multinational company. It is 100 percent owned by farmer shareholders and is our biggest player in international markets. I think I have heard figures tonight about the amount of the international dairy industry trade. I think 40-plus percent was the figure coming from this one company with its 10500 shareholders across New Zealand. Fonterra does a fantastic job. It is indeed our prized jewel. We need to make sure we protect it not expose it to the vagaries and fluctuations of international capital markets. Fonterra needs to remain in New Zealand hands in New Zealand ownership and deliver back to New Zealand every dollar that it gets. 
Whatever benefits foreign investment brings it brings other consequences. Every dollar that has to be repatriated to foreign shareholders is another dollar we have to find as a nation in terms of our balance of payments. Every dollar that we repatriate is another push on our New Zealand dollar keeping it high. Every dollar that we repatriate to foreign shareholders represents another pressure on our interest rates. All of those things end up costing New Zealand— 
Hon Rodney Hide 
: What rubbish! 
BRENDON BURNS 
: The member says “What rubbish!”. This is absolutely fundamental. Every dollar that we send overseas we have to find somewhere else and the member is telling me that that does not impact on our balance of payments. Is he telling me that that does not impact on the level of the New Zealand dollar? Is he telling me that it does not impact on New Zealand interest rates? 
Hon Rodney Hide 
: Correct. 
BRENDON BURNS 
: I find that extraordinary—no I do not actually coming from the leader of the ACT Party. He believes that the market delivers everything. He does not believe in Fonterra. He thinks the market does better. 
Hon Member 
: That’s why he got 2 percent. 
BRENDON BURNS 
: That is right. That is why he got 2 or 3 percent of the vote. 
We need to make sure that Fonterra gets some measure of protection and I think this bill does that. 
Hon Rodney Hide 
: Why don’t you sit down until you’ve got something to say? 
BRENDON BURNS 
: Why do you not stand and take a call Mr Hide rather than sitting in your chair like a chump? 
Mr DEPUTY SPEAKER 
: The member will not bring the Chair into the debate. 
BRENDON BURNS 
: The point about this bill is that it gives a measure of protection to the Fonterra shareholders. There are 10500 hard-working New Zealanders who every day go out and deliver for New Zealand. 
There are some people in this House who believe that the market can do better. They are the kinds of people who have taken the axe to the apple industry. We are seeing that industry doing so terribly well! They would now like to see that expand to the kiwifruit industry because they can do so much better! That is despite the way that Fonterra has shown that the shareholding structure that it has the cooperative nature that it has actually delivers real returns for New Zealand. Twenty-seven percent of our export receipts are delivered by that one company. That is a pretty impressive figure. But it is “socialism at work” and some people ideologically think that is anathema. They think the market can always do better even if the evidence strongly shows that that is not the case. I think the debate will happen and we will see people like Mr Hide take a role in it. He has had success today with the bill to gut Environment Canterbury. I hope he does not get his hands on Fonterra because that would be to the detriment of every New Zealander not just the 10500 people in the industry. When we get 27 percent of our export receipts from one company what a bunch of fools we would be to allow market ideology to take control of that. 
Hon Damien O’Connor 
: National fools. 
BRENDON BURNS 
: That would be one way of describing it. 
What we would see from a public float of Fonterra’s shares is ownership going outside of New Zealand outside of the hands of New Zealand farmers. That could lead to Fonterra falling into the hands of foreign investors. If it is going to be described as some kind of myth I tell members to look at the developments of last week when a Chinese company with a cheque book of around $1.5 billion indicated that it wanted to spend up large in the New Zealand dairy industry. It has seen the gains that this industry has delivered for New Zealand. It would like to take out a share of that. That is the way the world works but most nations of the world would say that is a short-sighted approach and that it will not protect New Zealand jobs it will not protect New Zealand investments and it will not protect our returns but will simply open the floodgates to a whole repatriation of money that should be staying in New Zealand. 
The door has opened somewhat. The Minister of Finance in one of his first acts last year as the new Minister ordered a review of the overseas investment legislation. The Overseas Investment Office’s ability to operate in the interests of protecting New Zealand’s sensitive land and resources was streamlined for reasons of speed and efficiency. We are now more open to further buying up of New Zealand’s land and the Overseas Investment Office which is our only protection against that does not have the tools necessary to make sure that it does a proper job to try to protect New Zealand interests. 
We have seen some people take a very strong position on issues like the sale of Auckland International Airport. Some of us happen to believe that there are things that are worth holding in New Zealand hands—like strategic assets. I have to say I list the New Zealand dairy industry as one of those. It would be foolhardy to do otherwise. Already that sort of investment is strongly under way. We have a wholly owned Russian company in Waimate. We have a company with a 22.5 percent Japanese stake in Synlait in the Dunsandel area of Canterbury and we will see more attempts I am sure to buy more of our dairy industry. I say let us keep Fonterra in New Zealand hands. 
We want to get it right as a nation in terms of fundamental industries like Fonterra and we have to get it right in terms of fundamental issues like water. Fonterra I acknowledge has been one of the architects of the Dairying and Clean Streams Accord. It is not delivering as it might and should but I applaud what I hear from the Fonterra leadership. They want to work to get the balance right and I have to say that Fonterra’s farmers are probably doing better than some. 
We are already under some assault in terms of our “100% Pure New Zealand” image.  
The Economist 
 was the most recent international critic of that branding. We have to get it right. When we see potential for big new rapid growth in my region of Canterbury we have to say that that is short-sighted. If we do not get the balance right we will be at risk because the international market place is watching and judging us already. Although that might be unfair because other nations probably have worse water quality than us other nations have not branded themselves as “100% Pure” as this nation has. It is not a bad brand to have but living up to it is now incumbent upon us as a nation. 
Similarly issues of animal welfare are important in the international market place and our reputation will be judged on that issue as well. We have a bill on animal welfare issues before the select committee at the moment. It is mostly focused I think on domestic animals but obviously it is also focused on many millions of stock animals. Animal welfare has to be delivered to stock animals as well as to pets. 
This bill is a start. It is giving the right signals in terms of the new milk-pricing regime. I support it and commend it to the House. 
JOHN BOSCAWEN (ACT) 
: 
 It is a privilege to rise and take a call on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill and I do so at 6 minutes to midnight. I wonder how many people are listening to this debate and how many New Zealanders are following a debate on the pricing of raw milk at 6 minutes to midnight. So it would be very easy to give up the opportunity to take this call and to shorten this debate. 
The reason that I am taking this call is that as we have heard this evening the dairy industry is a very very important part of New Zealand’s economy. We earn a huge amount of foreign currency from the dairy industry—some 27 percent. The Acting Minister of Agriculture the Hon Dr Nick Smith led off this debate. He explained that the dairy industry accounts for some 27 percent of New Zealand’s exports and that this bill would allow some several hundred million litres of milk to be opened up to other processors to produce. He talked about opening up contestable markets and how that would allow other people to come into the industry to purchase milk. They would pay a 10c-per-litre premium to secure supply. 
I then listened with interest as Mr Damien O’Connor talked about the great work that Shane Ardern had done. Mr O’Connor said he knew that Shane Ardern would fight tooth and nail to protect farmers’ interests. So although this is a third reading debate it has generated into a more general discussion on the dairy industry. 
The previous speaker Brendon Burns took the opportunity to raise issues not just to do with the pricing of milk but to do with other concerns that confront the dairy industry. For example Mr Burns talked about the capital restructure of the dairy industry the potential restructure of Fonterra and the need to raise new capital. He talked about the potential foreign investments in the dairy industry and he referred to the recent Chinese proposal to invest in farms. He went on to talk about animal welfare. 
I would like to talk about another aspect of the dairy industry and that is the price of inputs. I would like to bring the debate back to the concept that people who want to purchase milk other than Fonterra will have the opportunity to do so at a premium charge of 10c a litre. That figure of 10c a litre is quite interesting because from 1 July this year the emissions trading scheme comes into place and that is forecast to add 7c a litre to the cost of processing milk. Just as other companies that want to compete in this market will pay a premium so too will dairy farmers in New Zealand pay a premium for their electricity. 
I found it very interesting that the Prime Minister John Key would go along to a meeting of the Federated Farmers executive last November to try to assure farmers that they need not be concerned about the surcharges they will pay for their electricity under the emissions trading scheme tax. He told those farmers not to worry as their dairy stock would not come into the emissions trading scheme until 2015. He said there would be a 5-year period before Mr Shane Ardern would have to fight tooth and nail to protect their interests. 
What Mr Key did not tell the Federated Farmers executive was that the cost he was referring to the cost of the animals made up only one quarter of the total costs. So only one quarter of what dairy farmers will pay for the emissions trading scheme tax relates to animals. The other three-quarters that the dairy industry will face the huge proportion of the input costs will come from electricity petrol and the cost of the emissions of those Fonterra plants that we have heard about this evening. 
I am told that Fonterra is forecasting that that $25 a tonne will cost it some additional $80 million to process milk. Fonterra is being offered an interim price a half-price of $12.50 and that will reduce its costs to $40 million. So starting on 1 July we have an input tax an additional cost of processing milk for Fonterra alone—and we heard that that is only 84 percent of the market—of $40 million. That is $40 million to come off the price of milk. 
Hon Member 
: The Opposition tried to help. 
JOHN BOSCAWEN 
: I thought that might have been an interjection. I have before me figures from Meat and Wool New Zealand. It forecasts that the additional cost input that dairy farmers will face is some $10000 for the average dairy herd. Of that $10000 only $2500 or a quarter relates to animal emissions of methane. Of that figure $7000 is for electricity petrol and Fonterra’s emission costs. Half of that starts on 1 July. We will be the first country to tax our farmers the first country to charge our farmers extra for their petrol. That does not happen in Europe. 
Debate interrupted.