Prosser Richard: Dairy Industry Restructuring Amendment Bill — First Reading 
Prosser Richard: Dairy Industry Restructuring Amendment Bill — First Reading 
[Advance Copy - Subject to minor change before inclusion in Bound Volume.] 
RICHARD PROSSER (NZ First) 
: 
 I find myself again in the position of agreeing with quite a lot of what is being said on the other side of the House and yet disagreeing with what they propose to do about it. New Zealand First is opposed to the passage of the Dairy Industry Restructuring Amendment Bill in its present form. If the bill does make it through to the Primary Production Committee we will certainly relish the opportunity to tear it to pieces there as I am sure other members on this side of the House will do. I think in actual fact some good may come of having the various proposals in the bill put forward for public scrutiny and further opportunity for some of Fonterra’s own farmer shareholders to make submissions despite what the board has been telling us telling the nation and telling politicians about support that existed previously at around the 80 to 90 percent level for the Trading Among Farmers scheme particularly. That support was given on the basis that farmers giving that support were given an assurance that the shareholders would retain 100 percent ownership and control of Fonterra Cooperative. Now it appears that the rules which have not even been finalised as yet may be pointing away from that and that the way in which the share issue particularly the units attached to them may be traded will in actual fact have the opposite effect and that it will not be possible to deliver 100 percent ownership and control.  
New Zealand First believes that it is vital that this industry which is an enormous part of our overall economy stays entirely within the ownership and control of New Zealand and New Zealanders and the farmer shareholders who have built this industry. As a nation as everybody is aware we dominate the world export trade in the dairy industry. We supply something like 95 percent of the milk and milk products that are traded internationally. Because of that I think we have allowed ourselves to believe in New Zealand that we are significant as a player in the world dairy market. In actual fact that is not the case. New Zealand produces something like 3 percent of the world’s milk. So although we produce 95 percent of exports those exports are very insignificant in terms of world production. Fonterra might be the ninth-biggest dairy company in the world but it is less than half the size of the eighth biggest. We are a minnow in terms of overall production. There are dairy companies out there in the world that can swallow the entirety of New Zealand’s economy—never mind the dairy industry—and given the chance to do so they will do just that.  
But it is vital that New Zealand’s dairy exports continue to grow and it is vital for the simple reason that eventually this bubble that we are experiencing at the moment is going to burst. It is going to burst partly because of Fonterra’s own success in growing itself as an export business. There will come a point where the markets that we currently supply with bulk commodities from New Zealand are supplied from the farms that Fonterra itself is developing in those overseas markets. When those markets can be supplied from those markets what the Fonterra Cooperative will have to do is rely on what are currently its highest-value sectors of its business—those being its brands and its high-value ingredients. To do that we are told Fonterra needs to have more money available to grow that side of the business. This we can accept and this is what Trading Among Farmers was sold to the farmers on the basis of.  
If Trading Among Farmers could be constructed in such a way that it did guarantee that 100 percent ownership and control remained with the farmer shareholders it would be a good thing. But it seems that it cannot. The whole point about share trading is that it does not do anything to ensure that more milksolids are produced in New Zealand. When people start trading in the units the securities that are attached to the dry shares what they are going to be making their money out of is not producing milk and selling milk products; they are going to be making money out of buying and selling shares. This gets away from the entire purpose of the dairy industry which has been built up for 150 years in New Zealand by New Zealand farmers to produce milksolids to produce the best-quality dairy products in the world and to sell them to the world. What this scheme will do if it goes through will be to move their focus away from that to make that the secondary business almost; to put farmers in the position of becoming first tenant farmers and then peasant farmers as they rely solely on a milk price that is determined by the other major aspect of this bill. The profits will be made by trading in shares by foreigners.  
We oppose this bill for the same reasons that the shareholders council has chosen to oppose it: that it is not what the farmers were sold and voted on originally—farmers were guaranteed 100 percent ownership and control and that is not now deliverable. We believe that it should be put to another vote and we wonder why the board of Fonterra appears to be set against the idea of there being another vote amongst shareholders. We believe that that may be because the board of Fonterra also suspects that sentiment may be rising against it.  
It is worth noting that although this bill permits Fonterra to instigate the Trading Among Farmers scheme at a point of its choosing up until 2013 it does not actually put any regulations in place around how that trading scheme should function. We are very concerned that while those details are still being worked out this is not something that Fonterra should be allowed to do arbitrarily. It is like giving it a blank cheque particularly when there seems to be some discrepancy in the understanding of the system and the motivations between the shareholders council and the board. There are other ways for Fonterra to raise capital if it needs to. It has an AA+ credit rating and could borrow money on any of the world’s commercial markets at extremely competitive rates. Fonterra could continue to retain dividends from shareholders. In actual fact anything that Fonterra does—other than issue more shares in itself—is going to cost farmers in redemptions in one way or another whether it is direct or whether they are paying back debt.  
There is not currently a redemption risk as the proponents of this part of the bill claim. Redemption has occurred only twice in the history of Fonterra. But if there is one thing that is going to create a redemption risk it will be Trading Among Farmers because it will artificially raise the share price. The first thing that will happen once shares start being traded is they will increase in value. That will increase the motivation for some farmers to quit the business and take the money. Once the value of those shares goes up it will make it much more difficult for new farmers for young farmers to get into the industry.  
 It opens the door for outside influence and control as other members have said. If there are no restrictions—and there appear to be no restrictions—on who may or may not purchase the units attached to dry shares then the people who will buy them will be the ones with the money and that is going to be foreigners. It is as the member from the Greens alluded to a partial float in all but name and it has already been rejected by farmers for good reason. There is no purpose to the unit securities other than to facilitate trading that has no connection to milksolids. We note also that the Fonterra Shareholders’ Council has raised some questions as to the potential conflicts of interest between the due diligence legal committee provider and some of the board members.  
For all these reasons we feel that there is not sufficient good in this bill to let it go through to the select committee. If it does we look forward to as I say examining it closer there. Perhaps in the light of public scrutiny it may not even survive. New Zealand First is opposing the bill. Thank you.