Burns Brendon: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
Burns Brendon: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
[Volume:661;Page:10129] 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 As a member of the Primary Production Committee I am very pleased to take a call on the second reading of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. Labour supports this bill. It flows on from the dairy industry restructuring that we as a Government undertook some 9 years ago. I concur with the comments made about the chairing of the select committee by Shane Ardern; he does a good job as chair. Perhaps he should be the Minister of Agriculture and perhaps Colin King should be the “Minister for Small Grains and Seeds” in support. 
The main purpose of this bill is to replace the current regulated pricing formula that independent processors pay to Fonterra for farm-gate prices and to add a premium of 10c per kilogram of milksolids. I should say at the outset that I do not need to declare a conflict of interest on this issue. Unlike Shane Ardern I do not have an involvement in the dairy industry but I guess I do have a connection of a kind that I need to declare. My daughter is getting married on Saturday. Her husband-to-be is the son of a dairy farming couple from Northland who have recently retired. They are good people. They are not of my political persuasion but they were loyal Fonterra suppliers. There is a little irony in all of this. Over a couple of glasses of wine one night after we first met I remarked that Fonterra was a good socialist organisation and the parents baulked somewhat at that description. But as I reminded them the dairy farming industry was in dire straits in the 1930s because of the activities of the then party in Government which was the predecessor of National. Mickey Joseph Savage and the Labour Government came in and delivered loans to that industry. They provided guaranteed minimum prices. They supported the expansion of the cooperative system. A good socialist system has seen that industry grow and grow to the point where today it is our biggest single export earner and that is a great thing to see. 
I have to declare my support for Fonterra. It is 100 percent New Zealand - owned and long may it continue to be so. We would rue the day when there were changes that saw foreign capital flow into Fonterra because it would start a whole chain of events that would I think be potentially cataclysmic for New Zealand. I acknowledge that Fonterra has led the growth in the dairy industry in my region of Canterbury and Southland. That might sound a little curious coming from somebody who is known to hold very very strong views in terms of issues such as water quality. But whatever issues we have about water quality certainly in any contact that I have had with Fonterra and its leadership not one person in the senior team has ever been anything other than absolutely committed to improving the current water-quality in my region of Canterbury and to working with Fonterra’s farmer base to try to lift that quality. If we have a New Zealand - owned entity like Fonterra I think we have an odds-on chance of getting the balance right even with regard to the less positive events in the House earlier today. The Dairying and Clean Streams Accord with Fonterra may not be delivering the sort of progress that we want to see but it is certainly a lot better than nothing. I commend Fonterra for its support. 
There is certainly a question as to whether we would see the same sort of commitment if we moved to an industry with a strong and growing profile of foreign investment. It is a valid question to be asked and I pose it in the House. I believe that the commitment over the generations to New Zealand of the farming cooperative system that Fonterra represents is the sort of commitment that represents outcomes in environmental values as well as the bottom line. I think that is truly important because Fonterra is the jewel in our economic crown. It is our single biggest export earner. It level pegs at times with the tourism industry one has to acknowledge. Obviously there are some tensions between those two industries that we have to get right. We want to see both do well in respect of our revenues and export income receipts. But I think New Zealanders need to know where the Government will stand on the issue of Fonterra’s capital base. I ask the Government whether it will take a position of following market ideology and whether we will be seeing a public float of Fonterra’s shares. I think that would be a really backward step. The pressure is on. We have seen proposals to float those shares on the sharemarket which luckily the Fonterra stakeholder base has managed to thwart but the issue will come up again. I think we want to see Fonterra held in New Zealand hands and using its own shareholder base as the way to create some new capital for it. 
There has been considerable commentary in the last week about the Chinese company with a billion and a half dollars to spend on the purchase of New Zealand farms and infrastructure. I believe that one of the intended targets for it would be the Synlait company based in Dunsandel which was set up as one of the offshoots of the dairy restructuring changes that we introduced as a Government back in the early 1990s. I visited Synlait last year and as somebody with no deep understanding or knowledge of the dairy industry or how it operates I have to say that I was surprised to see Fonterra tankers pulling in and out of the Synlait plant in Dunsandel as well as Synlait’s trucks although I think the Fonterra trucks outnumbered them. It was explained to me that that was the basis of the dairy restructuring—Fonterra was obliged to supply milk to Synlait. 
We now begin to understand through this bill that the basis of that has been uneven. It has been tilted a little too much in favour of the competition that the Dairy Industry Restructuring Act provided for and this bill brings back some measure of balance to the equation. Competitors will pay a premium of 10c per kilogram of milksolids to ensure that they are given competitive reasons to provide their own facilities rather than simply if you like milk the tit of the Fonterra machine. 
One of the concerns that I have about the future of the industry relates to the Overseas Investment Office. Last year one of the first acts of this Government was to weaken the overseas investment rules. I think that is a concern. We all acknowledge the role that foreign capital has played in the creation of our nation and the role that it continues to play. We are not talking about shutting the gate but we have to be judicious about the way that we allow foreign investment to flow into this country as any other nation is. If we were to see further loosening in respect of our dairy industry then I believe that would be detrimental to New Zealand’s interests. At the moment I think the landscape is tilted in favour of foreign investors anyway because our monetary policy settings give them interest rate advantages over other domestic New Zealand capital. It brings to mind the call that Labour made about having some reconsideration of current monetary policy settings. 
I was interested to hear the comment from Shane Ardern about the percentage of exports that Fonterra now commands—84 percent was the figure he used I think. That surprised me a little given that we know Fonterra still holds about 92 percent of the industry in terms of the milk flows. Obviously the Dairy Industry Restructuring Act created competition. It is truly there in place. This bill is trying to make sure that those supplies of raw milk do not continue to give rival companies some sort of competitive edge and that we have a flow through the season that does not see them given all the benefits of being able to buy through the season at prices that are not available to Fonterra—they obviously enjoy the peak of the season prices. 
In conclusion I note that this bill makes a change to the wholesale milk price. It adds 10c per kilogram of milksolids. I think that is a sensible solid move towards assisting Fonterra. It is a rebalancing exercise. It is an appropriate way to try to ensure that we maintain this jewel in the crown to keep it functioning to keep it producing and to keep it delivering export receipts for New Zealand. Yes we want the competition there; it has a place in the market. But we do not want the field tilted in such a way that we give an undue competitive advantage to other organisations some of whom currently—let us be blunt about it—certainly have more foreign shareholding than Fonterra we hope will ever have.