O'Connor Damien: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
O'Connor Damien: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
[Volume:672;Page:18255] 
Hon DAMIEN O’CONNOR (Labour) 
: 
 Listening to the speech made by the member for Northland was a bit like watching grass grow I have to say. I am surprised really because he comes from a big dairying area. I thought he could have done it with a bit of passion given that the dairy industry is the No. 1 industry in this country and is still owned—for the moment—by New Zealand farmers for the most part. The Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill has been I guess if one wanted to be critical a waste of the time of the Primary Production Committee and of Parliament. The day before the first reading of this bill the Minister had indicated that he was going to get a full review of the dairy industry regulations under way something that is referred to in the Dairy Industry Restructuring Act and which this bill has addressed in a technical way. If one listened very carefully to every word that the Hon John Carter said—on behalf of his colleague Mr David Carter the Minister of Agriculture who could have been in the House explaining this—one heard that none the less this is a technical bill that is designed to continue the supply of milk to other companies that take in processed milk that is produced by Fonterra farmers in summary. 
Without going back over the technical parts of this bill in simple terms there was the potential for the threshold to be met as set down when Fonterra was set up in 2001 under the Dairy Industry Restructuring Act and at which time an automatic process was undertaken. That was the review of the regulations and the uncertainty that that may have created. 
So this bill was designed to offer certainty. The Minister then decided he would create more uncertainty by having a full review and that probably is warranted. Since that time of course Fonterra has stepped in and set a fixed price for domestic milk for the rest of the year—until after the election I would say. That was a move by Fonterra to try to keep ahead of a rising concern around the price of milk—and milk products I have to say. 
This bill ensures supply to those people some of whom are competitors and others who supply the domestic milk market here in New Zealand. In continuing the supply under a complex set of arrangements to establish the price there are still many many questions that need to be answered. There have been indications that the Commerce Commission is currently looking at whether it should investigate which is a very brave move for the Commerce Commission. It usually takes the commission at least 3 to 5 years to do anything. The commission has decided that it should investigate whether it should investigate. It is an ongoing process. I think the commission has given itself 2 months. I understand that it is struggling to get some information from Fonterra. We have had assurances from Fonterra that it welcomes a review by the Commerce Commission so that we can get on the table the realities and I guess the challenges of pricing milk on the domestic market—milk that could otherwise be destined for export markets that are currently enjoying record prices for commodities and ingredients. 
The likelihood is that those prices will continue to climb a little bit if not hold steady. That means that New Zealanders will probably have to continue to pay quite a bit for their milk—more than they would like to. None the less Fonterra has held the price. I say that it is a political deal in an election year and one that is connected to another issue of recapitalisation of Fonterra but I will not go into that now. 
One of the questions asked of me by my colleague is “What about Miraka?”. This is a small emerging Maori-owned dairy company in the central North Island. Its plant is under construction and it is expecting to get milk from Fonterra under the Dairy Industry Restructuring Act provisions. It will continue to be able to get milk until a comprehensive review of the regulations is undertaken—one that the Minister indicated would take place but has yet to decide when it will be completed. 
Other companies are getting milk such as Open Country Dairy Synlait and Westland Milk Products which are all competing with Fonterra in the international market place for the sale of milk powder and other ingredient products. Many farmers think this is a bizarre set-up that they as shareholders of the company obliged to take their milk have to supply milk to competitors. It is a trade-off established at the formation of Fonterra to ensure that although having a dominant position in New Zealand—that is well beyond 80 percent of the market—Fonterra should be obliged to provide milk in small amounts. I guess 50 million litres of milk is not a small amount if one tries to put it in a bottle but in relevant terms it is a small amount of milk for our industry. People who are innovative people who are developing new products can then get on and do so with certainty over supply. The reality is that we have seen the set-up of companies that are competitors—a number of them foreign-owned foreign-controlled—and Fonterra and New Zealand shareholding farmers are obliged to supply that milk. 
I will not get into the debate around the whys and wherefores and the justice of that other than to say that for the moment this bill will ensure that ongoing supply. The issue of the price they pay for that milk is one that could be looked at in part by the Commerce Commission if it does decide to do so if it is brave enough—and it is not very often brave enough I have to say; if it considers that to be a challenge then so be it. The commission is rarely brave enough to take on some of the real challenges in our economy around pricing but if the commission does decide to do this around milk then it may identify who is really making money from the supply of domestic milk products in this market. 
The farmers make a little bit Fonterra makes a little bit and the supermarkets make a little bit so we are told. I think that the inquiry may identify the reality that there are some profits in the whole process but the underlying driver of the international price for milk is what is actually pushing the price of products to what many in New Zealand consider to be an unaffordable level. 
Labour does support the bill. We found it somewhat bizarre that the day the bill was introduced the Minister had made it redundant. But it is necessary to stay ahead of what are effectively thresholds set down in 2001 which are almost being met. 
Before I finish I would like to comment on the issue of foreign ownership and foreign control and the issue of the restructuring of Fonterra. I think the Government has done a deal that the price of milk will be held in New Zealand during this election year that the Government will undertake to commit to process the trading among farmers and undertake the recapitalisation of Fonterra which I believe is one step towards the slippery slope of demutualisation and floating on the market. That is my personal view. The Labour caucus has yet to take a position on that. None the less that will lead to greater levels of foreign— 
Hon Dr Jonathan Coleman 
: And your views and theirs are often different on a range of subjects. 
Hon DAMIEN O’CONNOR 
: It is very good that Mr Coleman has spoken because it reinforces my suspicion of him as a man who works in the background keeping happy the supporters and funders of the National Party. I say that there is a level of foreign investment in the New Zealand dairy industry and that is growing. The international demand for protein will continue to climb as the world population increases. As the prosperity of many in Third World countries increases they will look to take in more protein much of it through milk. So the opportunities are huge. Many investors offshore are looking for opportunities in the New Zealand market and the dairy industry is the last big multinational industry owned by New Zealanders for New Zealanders that we still control and are proud to own. If we let it go on to the market I have to say it will be gone before we can say Jack Robinson. That is the way we tend to be as investors. 
I come back to the bill. It is a technical bill. It has taken up a bit of Parliament’s time. Strictly speaking it is unnecessary. Labour will support it but awaits the outcome of the Commerce Commission inquiry into the pricing of domestic milk and to see what the Government does with the recapitalisation proposals of Fonterra.