Ardern Shane: Dairy Industry Restructuring Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
Ardern Shane: Dairy Industry Restructuring Amendment Bill — Third Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3823. Text is incorporated into the Bound Volume.] 
SHANE ARDERN (National—Taranaki - King Country) 
: 
 Before I start my address on the Dairy Industry Restructuring Amendment Bill I must declare an interest as a family trust that I am involved in owns shares in Fonterra. There has been a lot of discussion around the ownership structure of our dairy industry during this debate. I want to just put on record as a dairy farmer as someone who has followed this debate closely and as chair of the Primary Production Committee that it is in the DNA of most dairy farmers who are shareholders in Fonterra to maintain 100 percent ownership in the Fonterra Cooperative. This is not just some ideology. It is not something that we think of just because that is what we think should happen; it is actually based in sound economics and commerce. That is that we produce a product that is very perishable at the time of its production and therefore it is important to be able to make sure—to have a 100 percent guarantee if you like through 100 percent ownership—that the processing the transporting the marketing and the exporting of that product is under the control of those who produce it. To trust someone else to do that would be a step outside of what has worked for our industry. 
But that said when Fonterra was formed it was a construct of legislation. It was the merger of three entities and it brought together 90 percent of the milk production in New Zealand. There had to be a regulatory structure to allow that to happen. If you study all international examples you will find very very few structures anywhere with that type of dominance in a particular market or within a particular industry sector. So the bill is a compromise. It is a compromise. There is a compromise in what we are trying to achieve and that is to allow free entry and exit for farmers who wish to enter or exit Fonterra and to make sure that they are able to enter and exit with their fair share of the capital that they bring in when they become a shareholder in Fonterra. 
Trading Among Farmers which is much debated and maligned by some in this debate received 66.45 percent of the milksolids shares in support of that concept. The bill does not compel the industry; it is enabling. It is enabling. It enables the industry to do that. The industry came to Government as the Minister for Primary Industries said and asked for it. The reason was that it identified $1 billion worth of potential redemption risk. That was identified because the industry’s funders told it that that is what they would discount or allow as a risk against the borrowing involved in the industry. So whether or not people agree with that or whether they think that was overstated or understated—or whatever the view is—that is what the industry was confronted with. 
I have heard a reasonable amount of discussion about the ability to retain earnings through retentions rather than pay them out to farmers and thereby overcome some of that redemption risk and that is true. There is an ability to do that. But in a time of hard economics with high debt a farmer cooperative that decides it is going to keep its own balance sheet in good shape and not look after its shareholder farmers is a cooperative that is probably on a slippery slope to oblivion and the farmer shareholders would certainly make sure that that did not happen. So once again it is not as black and white as others would have you believe. 
In the 2008-09 year when the redemption risk was real Fonterra was confronted first of all with an international economic crisis. Those are not my words; they are words used by economic commentators around the world and if you were to visit Europe at the moment you would understand what they mean by that. Fonterra was confronted with a drought in New Zealand which had the Minister of Agriculture at that time travelling the length and breadth of the country declaring big parts of the country a drought zone. And it was also confronted with the Sun Lu melamine poisoning in China— 
Hon Phil Goff 
: San Lu. 
SHANE ARDERN 
: San Lu—the member corrects me. It was confronted with the San Lu poisoning of baby formula in China. Those were three major hits you might say on the integrity of what is a farmer cooperative—the economic integrity of a farmer cooperative—that prides itself on exporting to the world milk and milk products with high quality and safety. So there was a redemption risk it was real and something needed to be done about it. The result of that and the many discussions that have taken place since then is the construct of Trading Among Farmers. 
At this point I just want to thank once again the members of the Primary Production Committee. We were faced with a number of challenging issues. This is a complex piece of legislation. It covers a wide range of very difficult questions to answer from where the Commerce Commission’s involvement should stop and start to where the limits on the size of the fund should stop and start to the price of Fonterra shares versus the farm-gate milk price. These things are not easy to resolve and certainly there will be no simple silver bullet to resolve these issues. The select committee not only listened to advisers from within Government but sought independent advice. We listened to the submitters—all of those who wished to submit to that select committee—and the team on that committee I believe had only one interest in mind and that was the interests of “New Zealand Inc.” plus the protection of our largest company and the exports of our products to 150-odd countries in the world. This is a very timely piece of legislation and I support the passage of this bill.