O'Connor Damien: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
O'Connor Damien: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Third Reading 
[Sitting date: 11 May 2011. Volume:672;Page:18600. Text is incorporated into the Bound Volume.] 
Hon DAMIEN O’CONNOR (Labour) 
: 
 It is disappointing that the Minister of Fisheries and Aquaculture a Minister who does not know enough about this issue has introduced the third reading of very significant legislation the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill although I have to say it is perhaps unnecessary given recent announcements. One day after this bill was introduced in October last year the Minister of Agriculture made this legislation redundant when he announced the need for a review of the whole legislation. So in terms of the last part of what the Minister read out we may get to a point where it is no longer needed. In fact the Minister of Agriculture thinks that that may be the case now. None the less Labour supports the bill on the basis that it continues to guarantee supply to independent processors. Those processors come in two forms. Some are exporters and some are domestic. Labour supports the provision of milk to those domestic milk industry players. I will talk more about the exporters in a minute.  
I will just give some background to this issue. Labour passed the legislation that formed Fonterra. Two big companies and the Dairy Board were merged to be one company effectively buying the milk processing the milk and then marketing the milk offshore. It is New Zealand’s biggest company and it is owned by New Zealanders. There are not too many companies of its size that are still owned by New Zealanders so it is very important that we get the legislation relating to Fonterra right. This bill is a small technical bill I guess strictly speaking but it goes to the heart of some of the debate within the industry. At the time of its formation Fonterra had 96 percent of the milk collected and processed in this country. It was a huge and dominant player. Even just 10 years ago a number of innovations were emerging in the domestic market. There were better kinds of yoghurt more cheeses and a number of innovations that the previous Labour Government thought should be supported aside from the big traditional players like Cadbury and those who were supplying domestic milk at that time. Two companies were owned by the dairy industry and one of them was forced to be sold. Goodman Fielder came in anyway but there was a need to guarantee them supply for New Zealand consumers. So Labour facilitated that through the dairy industry restructuring legislation. 
But things have moved on. The industry has grown significantly under Labour. I have to say that our 9 years in Government saw very strong growth in the dairy industry and we welcomed that in terms of export earnings. I think the previous speaker referred to $12.1 billion in exports and 29 percent of our merchandise trade last year—it is a big big player. But in giving it that dominant position we needed to ensure that there was ongoing supply to independent processors. At that time there were only a couple of other processors exporting offshore—Westland Co-operative Dairy Co. Ltd which remained independent; and Tatua. There were not many others players. We have seen the development of Synlait the proposal around Miraka and a dairy company owned by Maori—a corporation that wants to own its own milk processing plant. The Russians have been down in the South Island. Open Country Cheese Co. is another. It was set up by former members of this House John Luxton and Wyatt Creech. We have seen those companies develop into competitive exporters of the same products as Fonterra. A question has arisen in the minds of farmers and other fair-minded New Zealanders. Why should Fonterra be forced to collect milk from farmers and then effectively direct a tanker to a competitor’s factory where they will process the milk and compete in the same markets offshore? That has been an ongoing discussion and I think it is something that is currently under review by the Minister. Should Fonterra be forced to supply its competitors? 
However there is still a need to ensure that Fonterra supplies innovative domestic products. I picked up today—and we will see many of these articles coming up—a 
dairy industry 
magazine article that states: “Soaring milk prices hit cheesemaking.” These are gourmet cheesemakers who are struggling because of the international increase in the price of milk and milk products. They have been forced to pay more for their milk. I think that is fair but unless we had guaranteed their ongoing supply if they were engaged in a debate or a negotiation over price Fonterra could have effectively chopped off their milk supply. That is not good enough. They need to have some certainty in their business and that is what Labour is supporting through its support of this legislation. But we do expect the Government—and Mr Carter is not here—to indicate what is happening with the review. Is the Government likely to change the requirements to supply competitors?  
Strange as it may seem there is one competitor who is getting milk but does not really want it. That may sound a little Irish—with all due respect to my Irish heritage—but that group is from the West Coast and it came to the Primary Production Committee to make a submission on the bill and it was the most principled submission this House has probably seen for a long time. The Westland Cooperative Dairy said it thought it was bizarre that Fonterra should be forced to supply competitors. But as long as Fonterra was being forced through legislation then it as a competitor was going to take that milk and indeed it is lining up to do that. So it was honest enough to come to Parliament and say it did not think that practice should continue but that as long as Parliament legislated for it it would seize the opportunity.  
There are other competitors who are happy to take as much milk as they can for as long as they can and then go out into the same markets—not always the same markets—and compete. The danger then is as we see with the meat industry that people selling the same products into the same market from New Zealand have only one thing to compete on and that is price. So we see price and value destruction in the market place and the ultimate loser from that is New Zealand and New Zealand farmers. That has been very destructive in the meat industry and it has been very destructive in the wool industry where competition offshore has undermined value developed and created by New Zealand farmers and the New Zealand economy. We do not endorse the continuation of that. That is why we support a review of the need through the Dairy Industry Restructuring Act legislation to continue to supply the competitors.  
I want to make a couple of points about Fonterra itself. There is much happening in this area. Fonterra is growing as a company and there are requirements in the Dairy Industry Restructuring Act that state that if a farmer chooses to leave the company they are entitled to take all their capital—that is the value of their shares which are fixed-value shares—with them and move off and supply a competitor. That creates what Fonterra calls a redemption risk—that is it might have to pay out a huge amount of money if farmers want to exit or if through a drought their production drops drastically. I do not buy into Fonterra’s argument completely. It is proposing a total recapitalisation of the company which will allow trading of the shares between farmers and then trading of bonds by outside investors. In my view that opens up the company to potential direct foreign investment and outside influence and we could very well lose control of New Zealand’s biggest company. That is a big debate taking place at the moment.  
I think that the sweet deal done by National and Fonterra whereby Fonterra will hold the price of domestic milk until the end of election year on the basis that the Government would get through the trading among farmers legislation has kind of fallen apart. The Minister astutely has worked out that farmers do not actually endorse this trading among farmers completely. They are uneasy about some provisions in the proposals put forward and checked by the Ministry of Agriculture and Forestry so they want to back out of it. I think this House will see dairy industry legislation in the near future. I just hope it supports and upholds New Zealand’s ownership of Fonterra and that we get a fair deal for farmers.