Burns Brendon: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
Burns Brendon: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
[Volume:672;Page:18259] 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I was a member of the Primary Production Committee through much of the time it was considering the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill so I am pleased to take a call in its second reading and to affirm that Labour supports the bill. We definitely want to see a healthy and competitive dairy industry. It is essential for New Zealand’s interests. We want to see a market where consumers are able to get high-quality product at affordable prices but there are some questions around that which I will come to in a moment. 
The other thing I want to note is Labour’s view that dairy processing companies having the benefit of the provisions of this legislation and its predecessor cannot take comfort from the fact that this will be an ongoing situation. We must get to the point at some time where New Zealand’s dairy farmers in the Fonterra fold do not continue to subsidise their competitors indefinitely. I think it has to be accepted whatever the arguments put up that there is an element of subsidy in this. I remember well in the select committee process the former National Minister Mr Wyatt Creech who is of course associated with dairy interests in the Waikato’s Open Country Cheese Co. railing against the New Zealand Institute of Economic Research’s analysis of the cost to Fonterra of the requirement that it take and process milk on behalf of its competitors. The estimate of that report was in the order of some $400 million to $500 million a year. Mr Creech made some play of the fact that anybody can get the result they want if they pay the consultants the fee. I noted to him that the Government used his services to do a review of Environment Canterbury last year leading up to the disembowelment of that democratic franchise. So yes anybody can probably get the outcomes they want if they are prepared to pay the fee—in some situations. 
The reality of the situation is that as this bill was starting to come through the select committee process we had the Minister announce his own review of Fonterra’s obligation to supply milk to those independent dairy processors. That review was just coming through and it would have made much more sense to have had that aligned with this bill so that any changes that came out of the review could have been incorporated in the bill. It was an odd process. We acknowledge that we needed to extend the sunset clauses for the industry but that certainly was not in alignment with best practice shall we say. Although we support this review and the new clauses in the bill in relation to supply we have to note that it is concerning to see that in effect we have New Zealand - based farmers in the Fonterra fold all of whose income comes back to New Zealand. It is a critical element in the make-up of our economy. It is a $10 billion export earner and every dollar that Fonterra makes comes back to New Zealand. It is glorified socialism at its best I have to say and Labour has a proud history in respect of the support it gave to the dairy industry back in the 1930s under Michael Joseph Savage. It rescued the industry from its knees gave it the cooperative structure and the capital for it and has served the industry well to this very day. 
It galls just a bit to see that companies such as Synlait which is based in my home province of Canterbury are beneficiaries of this. I visited Synlait a couple of years ago and I was quite surprised to see the number of Fonterra tankers pulling in and bringing milk to that plant. Of course it started with the great grandiose objective of producing product that nobody else was producing. It was going to go into the high-value end of the commodity chain and produce the sort of stuff that Fonterra could never do but in fact as I toured around the plant it became very obvious it was producing milk powder as Fonterra does at any number of its plants and effectively competing against Fonterra at the medium end of the food chain rather than at the high end of the food chain as it began. The other cost and consequence of an organisation like Synlait is that it has just recently had Overseas Investment Office approval; the model it had set up has not proved successful so at a very early stage it has had to bring in capital from overseas. It is a Chinese investment company but it makes very little difference whether the company is headquartered in Shanghai or Sydney. The net result is the same: the profits will go offshore. The net effect is we need to find that capital in some other way and as a nation that is not generating its own capital we have to effectively import it. That keeps our dollar high and our interest rates high and increasingly it makes us a poorer nation as time goes on. 
Dr Russel Norman 
: Well vote against it. 
BRENDON BURNS 
: No we have to have a bill that will encourage competition and this is the best we have. I acknowledge the comment from my colleague from the Greens that we do not have the sort of competitive model we need. We need only to compare the price of milk on this side of the Tasman and the other. I was across in Australia just last week for a Finance and Expenditure Committee conference and I noted that the price of milk there is as low as about $2.58 for 2 litres. Here we pay $4.80 so the model ain’t working but I would rather see a model where Fonterra continues to dominate than an increasing amount of foreign investment in our dairy industry and that is in prospect. 
We saw the extraordinary situation a couple of years ago when the Minister of Finance with the wind in his sails announced a review of foreign investment law that would liberalise the rules which were “penalising” investors from overseas and that would open us up to more foreign investment in industries like the dairy industry to provide that true edge of competition. The Prime Minister got wind of the fact that New Zealanders were becoming increasingly concerned at the fact that we were seeing an increasing amount of foreign investment. The  
New Zealand Herald 
 piece by Brian Gaynor last Saturday noted that in the last 20 years more than 40 percent or thereabouts of the sales of assets listed on the New Zealand Exchange have gone into foreign hands and that was not including companies that have gone offshore such as Goodman Fielder Brierley’s and a number of other companies. We are probably nudging up to half of the sales that have happened through the stock exchange over the last two decades have gone into foreign hands. What has been the particular benefit of that? It has not been bringing more income back into New Zealand and it has not been advantaging us. 
That is why Labour is making no bones about the fact we will review foreign investment law and we will make sure we will see a New Zealand benefit in things. I have to note that even after the Prime Minister U-turned the Minister of Finance on this issue and said we would not have a liberalisation of the rules and the Government has kept the strategic asset test the reality is that Bill English is still saying we will have greater ministerial flexibility. That gives no certainty whatsoever in respect of foreign investment in our dairy industry or any other industry. The reality is that when questioned about it the Minister for Land Information Maurice Williamson could not say whether the changes to the overseas investment rules would actually amount to much. In fact he could not say whether they meant he would decline more purchases of New Zealand farmland. The Government is posturing on this issue and I believe that the net result will be that we will end up seeing more investment under a National-led Government allied with ACT in respect of the dairy industry and that does not bode well for our future. 
I think there are members opposite who have come through the Fonterra system who know its value and who see that it delivers every dollar back to the farm gate not to foreign investors. It does deliver for New Zealand—it may not be delivering as well as it should be doing on price and the Government has been forced to start looking at review options for price but the reality is that if we do not get a real change in terms of foreign investment laws we will see increasing foreign ownership because the world wants more milk and dairy product and increasingly affluent nations such as China and others want to buy into industries like ours and extract the value and benefits for themselves. It is a very natural thing for them to do but it is not in the net interests of “New Zealand Inc.” for that kind of process to happen. It is more likely to happen under a National-ACT coalition Government. I note that the former leader of the National Party Don Brash now the new leader of the ACT Party is a director of a dairy company down south which is largely—or was at least—foreign-owned. So that is the model I am sure he would like to see and that he will be leveraging to get more of under a returned National-ACT Government. That is not in New Zealand’s interests it is not in the interests of the dairy industry as represented by Fonterra and it is an issue that this Government has to address. It has not done that through this bill and it is about time it did.