van de Molen Tim; O'Connor DamienTIM VAN DE MOLEN (National—Waikato): Thank you Madam Chair. I think that's a really interesting point and it'll be interesting to see how that actually plays out if we do get to the situation where for some reason in the future Fonterra chose not to accept an appointment and we would go from there. But look I really wanted to come back to that new entry clause because for me that's a biggie. I've always been passionate about the young farmers entering the industry. There are a number of challenges. Over a period of time now it seems to have become more difficult; that pathway is not quite what it used to be. So I'd be really concerned about restricting that any further.I note the wording here. I just wanted to get some clarity from the Minister in the chair the Hon Damien O'Connor around Supplementary Order Paper 547 replacement section 73(3A)(a) set out in clause 20B where it says the effect of its decision on the ongoing viability of the farm to which the application relates if new co-op had a supply agreement in respect of the farm … in the previous season;". So is that saying that they only have to consider that if Fonterra had a supply agreement on that farm irrespective of whether or not it was a dairy farm? So if a young farmer for example comes along buys a farm that may not be a Fonterra supplier but has previously managed or been an equity manager potentially—whatever structure they've come from on Fonterra farms—wishes to supply Fonterra but the farm had been supplying another processor does that mean that Fonterra no longer have to consider that in this situation because of the wording there saying that it is only in respect of a farm they've had a supply agreement with?Hon DAMIEN O'CONNOR (Minister of Agriculture): Look that's a very fair point. No if it's supplied another company there would be no obligation for Fonterra to pick that up; that's clearly the intent of this. As I say it's a bit vague; it's not exact. In my view Fonterra will want every drop of milk it can get its hands on as will most other companies. So I don't think that there will be lack of demand for the milk from a farm that has been a dairy farm. But the reality is that if a farmer moves to supply another company then there's no legal obligation for Fonterra to take back supply from that farm. So someone purchasing that farm has to understand that. That's I guess the issue: the independents.I'd like to put on record the fact that they fear that the dominant position of Fonterra may lead to bullying as I say and threats to a farmer—and it may be realistic—that is that if you leave Fonterra as a company and you go to supply an independent then there's no automatic right to come back to it. Indeed that's what the intent of this change is but they fear that that might be overplayed and that farmers who might be forced—and there have been many situations where banks in fact have told farmers to sell their shares and lower their debt and supply another company.So that's perhaps an unfair situation. Should there be an obligation for Fonterra to take that milk back? This legislation says no. In my view Fonterra in reasonable situations will probably take back that supply which is I guess some of the concerns of the independents. We don't want farmers to be locked in either way. We do want some flexibility. But the situation that we've had with open entry of course is that Fonterra has been obliged to provide capacity for farmers who might come back.One of the big challenges for the dairy industry is environmental management and we have seen the odd season of course where milk has had to be dumped because there hasn't been capacity to process. There will always be seasonal fluctuations in the volume of milk so every company will have to have some headroom. What I would like to put on record is the hope that there will be cooperation between companies. Historically we've seen Fonterra and its predecessors work with companies like Tātua that are smaller and perhaps more fragile and exposed. There's been cooperation when seasonal variation has occurred—they've been prepared to take surplus milk into the plants and process that.There have been incidents more recently where Fonterra hasn't always been as cooperative and prepared to take some of the milk from other companies. I can refer to Westland when sometimes we have events where actually plants have to shut down. Ensuring that there's fairness—of course there has to be I guess commercial returns. No one's saying that shouldn't occur but I would expect this Parliament to look at the legislation again if we were to see a situation where a company through no fault of its own was unable to process milk that they asked Fonterra who had the capacity to process that milk then Fonterra said no resulting in I guess a degradation of the dairy industry's reputation or an environmental impact or some other negative that was unnecessary.This industry has been built on cooperation on the companies that came together to form Fonterra. Just because it has about 80 percent of the industry does not mean that it should then start to dictate to other farmers and other companies. Yes there are international companies that have come in taken the 50 million litres of milk and built up and sometimes competed with Fonterra but I'd suggest that there's enough opportunity across the world in the supply of high-quality dairy products that they don't need to compete with one another in that market place.So we hope that this legislation while providing more discretion to Fonterra doesn't result in a domination that undermines the cooperation that has given us the success to date and that will be needed into the future as we develop and as we see companies invest in high-value products and that we see us move up the value chain which is what this Government and I'm sure all people in this Parliament would like to see from the dairy industry.TIM VAN DE MOLEN (National—Waikato): Thanks for that clarity Minister O'Connor. I guess the concern is that for a number of younger farmers often that first farm purchase is not in the prime tier 1 country—it might be a little further out from an affordability perspective. So that may potentially raise some concerns for a company around distance to the factory from their desire to collect that supply potentially. So that was really where I was coming from with that. I don't want to see young farmers prejudiced and not able to get in off the back of that if for whatever reason the other company that may have been taking this supply agreement with that farm then chose not to continue with a new operator. I guess there's an element of due diligence that has to come into play there for a potential purchaser and we'll certainly see how that plays out over time.But just in relation to your second point as well around the capacity within different processing plants I think that's an important consideration. And certainly what we've heard and the reason we're working through this process is that there have been a number of issues around getting that balance right—making sure that we aren't over-invested in stainless steel all around the country but at the same time matching the demand where necessary and those seasonal fluctuations are being catered for. I agree that if Fonterra's in a position that they can take that supply well they should within reason. There's still a commercial element to that as well. And if the other company is wanting them to process it on their behalf the question would be: why? Is it simply a capacity issue? Well then that's maybe a bit different. But if it's a cost or volume consideration then I think it would be unfair to expect Fonterra to have to process that if their own view was also that it was not competitive for them to do so.I agree though that fundamentally it's that cooperative principle. So you would hope they would all be working together but at the same time there are some commercial realities with that. So yeah look I just want to reiterate my concern but also noting that it is pretty difficult to get to a position where we can have a defined answer for that and I think it's important that we are making clear our intent here in that and we'll see where it plays out I suppose.The question was put that the amendments set out on Supplementary Order Paper 547 in the name of the Hon Damien O'Connor be agreed to.Amendments agreed to.Parts 1 and 2 Schedules 1 and 2 and clauses 1 to 3 as amended agreed to.House resumed.The Chairperson reported the Dairy Industry Restructuring Amendment Bill (No 3) with amendment.Report adopted."