Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Third Reading 
[Sitting date: 11 May 2011. Volume:672;Page:18599. Text is incorporated into the Bound Volume.] 
Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill 
Third Reading 
Hon PHIL HEATLEY (Minister of Fisheries and Aquaculture) 
 on behalf of the  
Minister of Agriculture 
: I move  
That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a third time 
. The bill was tabled in the House in October 2010. It had its first reading on 14 October 2010 when it was referred to the Primary Production Committee for consideration. The select committee reported the bill back to the House on 22 February 2011. The bill has now had its second reading and passed through the Committee stage.  
The dairy industry is an integral part of the New Zealand economy. The industry contributed $12.1 billion or 29 percent of New Zealand’s total merchandise export value in the year to December 2010 and the industry continues to grow. As a result of productivity improvements and the expansion of dairy farming over the past few seasons New Zealand’s milk production is growing at around 3 percent per annum and there is potential for further growth over the next 10 to 20 years. On the back of this strong milk growth we have seen increased investment in the industry through the entry and expansion of dairy processing companies and specialised food producers. The increasing diversity of business models entering the dairy industry is providing choice to New Zealand farmers as well to domestic and international customers and consumers.  
The Dairy Industry Restructuring Act has provided the regulatory framework in which new companies are able to enter the dairy processing industry and test the efficiency and profitability of their different business models. The purpose of the pro-competitive measures contained in the Act was to promote the efficient operation of New Zealand’s dairy markets by ensuring that New Zealand markets for dairy goods and services were contestable. The contestability of milk supply provides incentives for all dairy companies to seek innovative opportunities and drive cost efficiencies and therefore improve the value of New Zealand milk and the returns to New Zealand farmers and the wider New Zealand economy. Upon the passing of this bill the market-share thresholds that trigger the expiry of the pro-competitive provisions of the Dairy Industry Restructuring Act will be extended. This will ensure that the Dairy Industry Restructuring Act will remain in place for a while longer contributing to the promotion of the efficient operation of dairy markets in New Zealand.  
The bill also provides for a new process for the expiry of the pro-competitive provisions whereby the Minister will request a comprehensive competition analysis of the industry. This will provide the opportunity for the Government of the day to consider whether when the new market-share thresholds are met the dairy industry is indeed ready to move to a regulatory regime consisting of generic competition law only rather than the additional industry-specific Dairy Industry Restructuring Act.  
As the industry continues to evolve the Government needs to have a mechanism by which to regulate the behaviour of its participants at least until we are sure that the industry is ready to move to a less regulated environment. It may be that at some point in the future the industry will have evolved to the extent that the pro-competitive provisions of the Dairy Industry Restructuring Act are no longer needed. Until then we do need them. This bill extends the life of the Act so it will continue to promote a contestable market for farmers’ milk and ensure that dairy markets in New Zealand operate efficiently. I commend this bill to the House. 
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. 
SHANE ARDERN (National—Taranaki - King Country) 
: 
 In the 30-odd seconds I have before the dinner break I say it is a pleasure to rise in support of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. The previous speaker Damien O’Connor has outlined the history of the legislation reasonably accurately. I add that this industry is 27 percent of the country’s export earnings and it is one that we must get right. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
The CHAIRPERSON (Eric Roy) 
: The House is resumed. Shane Ardern has the call and he has 9½ minutes remaining should he wish to avail himself of the opportunity. 
SHANE ARDERN 
: I am not sure whether I would make myself popular if I did. Speaking to the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill I think it is probably fair to put a little bit of context around it and talk about what is broken and what we are trying to fix. Effectively three issues were bothering the board of Fonterra and the Government alike. One was that the original Act the Dairy Industry Restructuring Act 2001 has the potential to expire some time in the not too distant future as was set out 10 years ago when it was first put in place given that the triggers that trigger the expiry clause are close to being met in the South Island at least and are probably a year or two away in the North Island. The Government looked at that and decided that the dynamics of the dairy industry outside what is controlled by Fonterra are not strong enough as yet. For that reason the Government decided it would be suitable to extend the period that the Dairy Industry Restructuring Act stays in force.  
The other major issue amongst the farming fraternity the shareholders of Fonterra was the price at which Dairy Industry Restructuring Act milk was being sold. The formula being used to set that price had developed into what was being seen by the shareholders of Fonterra as a subsidy to other companies that are able to pick up that 50 million litres of milk per company. So a price was set: Fonterra farm-gate price plus 10c. The 10c was put there to take into account the recognition of the loss of opportunity on the shoulders—that is a dairy season typically goes up with a sharp peak and comes down again on the far side with not such a sharp peak but it tapers away. If processing companies can pick up milk at the low points of that shoulder if you like then they have a substantial advantage. It was recognised that that was a cost to the shareholders of Fonterra.  
People talk about Fonterra as though it is some conglomeration of international executives etc. but it is worthwhile reminding ourselves at this point that in fact Fonterra is a farmer cooperative owned by 10300 shareholding farmers. So the 10300 individual small to medium sized businesses—some of them could potentially be described in New Zealand as large but certainly not internationally—that own this company are subsidising the other companies. In the end the Ministry of Agriculture and Forestry accepted that it was the case that they were subsiding those companies picking up the 50 million litres because they were not getting a fair return on it.  
The further point that this bill addresses is the fact that in the South Island the Westland area was excluded from the catchment that was measured to establish the trigger levels. In the legislation it is prescribed as about 80 percent of all milk collected in New Zealand going through Fonterra which is referred to in the legislation as the new co-op because that was the name it was given when the legislation was first put in place prior to the name “Fonterra” being introduced. The Westland area—the Westland Regional Council boundary I think it is or the territorial authority boundary—was excluded. The reason for that was the Westland company was one of the original companies that was part of the Dairy Board when the merger of the two major companies in New Zealand took place including the Dairy Board.  
The Westland company chose to stay outside that and until recently—about two seasons ago I think—it chose not to collect the 50 million litres of milk that it was eligible to collect under the Dairy Industry Restructuring Act because it never believed that that was in the best interests of New Zealand. But because the Dairy Industry Restructuring Act is likely to be extended the Westland company submitted to the Primary Production Committee that it is at a commercial disadvantage by not taking advantage of that 50 million litres and it has chosen now to do so. It collects milk from mid-Canterbury carts it across to Westland and processes it there. So the argument that Westland should stay outside the total catchment of the South Island because there is no real competition in that regard is now null and void. The area of Westland has now been included in the total catchment area for the South Island to establish when that trigger will be met.  
A range of other issues has been addressed during the discussions but I will leave those until another time. I sure there will be further debate in the dairy industry going forward and potentially further legislation. It is our intention to support this legislation. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 Here we are at the final stage of this important legislation the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. I acknowledge at the outset the contribution the dairy industry makes to this country. It is a $10 billion export earner and that underscores the importance Labour attaches to this bill and some semblance I suppose of regulation around the pricing of milk in this country.  
Having said that I want to express concern. I am a great supporter of keeping dairying in New Zealand hands and that has been the model until the Dairy Industry Restructuring Act came in. I think Fonterra controlled about 96 percent of the milk produced. That has stretched somewhat over the course of the last 10 years and this bill is attempting to provide some final mechanisms to ensure competition in milk supply.  
In that 10-year period we have seen some other changes that we as a House need to note. I particularly point to the increasing presence of foreign investment in the dairy industry. I am no xenophobe. Foreign investment has helped build this country but there comes a point when we have to question the value that foreign investment brings not just in terms of the implications it raises for us as a nation that is short of capital and is constantly needing to import capital therefore effectively providing a mechanism that keeps our dollar high and makes export industries like Fonterra more troubled as they try to compete in foreign markets. Foreign investment also brings questions around environmental matters. Although we are assured that everybody is covered by the same laws I guess we have a feeling an innate belief that New Zealand - controlled companies with a stake in this country and with a commitment to the communities of this country will be better environmental stewards than those that are simply here for the returns the investment can bring.  
In the passage of this bill I have noted the increasing stake that foreign investors have in the dairy industry. I look at the Synlait plant near Dunsandel where the plant itself is now 50 percent owned by a Chinese investment company. I do not think it matters whether the shareholding is held in Sydney or Shanghai the net economic effect is the same. The distance from the communities that underscore New Zealand is reflected in this bill in that 80-plus percent of the milk market is still controlled by Fonterra. Fonterra is 100 percent pure Kiwi in terms of its ownership structure. That is relevant and that is why this bill is in front of us.  
We want to see healthy competition. We want to see Fonterra still able to trade profitably. I note one of the submissions to the select committee—and I was on the Primary Production Committee for at least part of the hearing of submissions on this bill—in which Fonterra put up a New Zealand Institute of Economic Research report that suggested that the cost to Fonterra of the regulations that are in place requiring it to supply its competitors was in the order of half a billion dollars a year— 
Shane Ardern 
: $700 million. 
BRENDON BURNS 
: I am happy to elevate the figure according to my learned colleague across the way from the dairy industry Shane Ardern. The cost was $700 million. That is a big price to pay and if that was engendering competition between New Zealand companies and driving competitive milk prices and the like I do not think we would have too much of a view about it but of course we have seen milk prices rise over the last few years and we have also seen an increasing foreign component in investment.  
We have to look at the bigger nations that are short of food. Strategic investments are being made. We have seen the pin-up case of the Crafar farms and the question of whether they will be sold to foreign investors. We are expecting outcomes on that fairly shortly but that will not be the end of it.  
We have the Chinese investment in Synlait and Singaporean investment in Open Country Dairy and we have had—if we do not still have—a 100 percent foreign stake in the New Zealand Dairies plant down near Waimate. As I say my concern is not about the ethnicity but about the investment. It does not matter whether the investment is from Sydney or Shanghai it still creates two issues. The first is to do with the outflow of capital which keeps our dollar and interest rates high and makes it much harder for companies like Fonterra to remain competitive in very strong and competitive markets and the second is the question about whether something that is purely there for the dollar return without the commitment to the communities of New Zealand as envisaged under this bill will be able to deliver the same sorts of environmental outcomes especially in the light of what I think is still very weak environmental law. That is evidenced by the Environmental Protection Authority Bill which passed through the House only today and in respect of the national policy statement on freshwater management that was released earlier this week by the Minister for the Environment which simply fails to enforce any new regulatory controls on delivering safe and clean fresh water.  
There is another concern that I will refer to. I noted that the Minister of Agriculture answered a question in the House today in respect of irrigation and water storage. Fonterra and other dairy producers will be the major beneficiaries of the Government’s commitment of nearly half a billion dollars to increasing irrigation and water storage. The dairy industry is most likely to be the major beneficiary of that commitment and I think the Minister indicated that benefit in talking about the sorts of export returns we could see boosted by that investment of $1.4 billion over the next 7 years. He went on to say that the commitment was about taking a balanced view to deliver economic growth and environmental sustainability.  
As I said at the start of my speech I believe that the dairy industry as evidenced by this bill can contribute both economically and on an environmentally sustainable basis if it is done properly. But I have to note the issues that were raised last year about Lake Ellesmere / Te Waihora which according to an Environment Court report back in 2005—6 years ago—was found to have been biologically killed by the flow of nutrients and other pollutants into those waterways. The lake was regarded as one of the world’s top trout fishing fisheries only 30 or 40 years ago and we have to ask whether the growth that is envisaged in the dairy industry under this bill which is going through its final stage in Parliament tonight will mean that we will see more Lake Ellesmeres because we are not seeing parallel to this bill strong environmental protection.  
I note that a decision was made by the Department of Conservation last year to refuse a grazing licence to a dairy farmer—I am not sure whether he was supplying Fonterra or Synlait but it will have been one of the two—on the banks of Lake Ellesmere. That decision was overturned after an intervention by the Selwyn MP to the Minister of Agriculture. That underscores the concerns that I have and that Labour holds when we debate bills like this one which will see future growth in the dairy industry and we see the continued repetition of the line that there will be balance between economic and environmental outcomes under this Government. When we see a situation where a lake has died because of nutrients flowing into it the Department of Conservation takes an entirely appropriate decision to say no to a farmer having a lease of land right on the edge of that lake which has died because of nutrification and a Minister gets involved and assists the farmer to overturn the Department of Conservation decision that underscores the very strong doubts that I and others on this side of the House hold in respect of that supposed balance.  
We are constantly told by the Prime Minister and other National members about getting the balance right between economic and environmental policy— 
Sandra Goudie 
: Try and throw a few facts into the equation.  
BRENDON BURNS 
: The old dairy-snorter across the way there might interject but the reality is that that is the definition of “balance”. I gave an example of where balance is only at the environment’s expense and that is why even though we support this bill in respect of the continuance of a competitive model basis for the dairy industry we do so with some very real concerns as evidenced as recently as in question time in the House today and the answers from the Minister. Balance for this Government tends to mean at the environment’s expense.  
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I stand to speak on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill or rather the “Movement of the Goalposts Bill”. This bill requires Fonterra to supply subsidised milk to its competitors but it changes the goalposts. Previously Fonterra could have stopped providing subsidised milk to its competitors sooner but now we will delay so that Fonterra will have to provide subsidised milk to its competitors—its overseas-owned competitors in particular—for a longer period.  
There are many reasons why this bill is flawed. We could start with the obvious one. Why are we making a New Zealand - owned producers cooperative subsidise its foreign-owned competitors so that they can compete against it in the foreign markets? That is an absurd proposition and unbelievably this House is voting for this absurd bill.  
The background as to why this bill is particularly ill-timed is what is happening in commodity prices. Over the last 100 years commodity prices dropped very dramatically about 1.2 percent a year across all commodities looking at food iron ore and other minerals but in the last 7 to 10 years all of that century of drop in the value of commodities has been wiped out because commodities have increased dramatically in value right across the board. So a century of slow decline in the value of commodities has been reversed in the course of a decade.  
Against that backdrop those who produce commodities whether it be milk powder or iron ore have suddenly found the assets that produce those commodities suddenly become much more valuable than they were previously. In Australia of course we have seen the massive boom in Western Australia—linked to iron ore in particular but not only to iron ore—and in New Zealand we have seen the boom in prices for land that has access to water to produce dairy solids and dairy protein has become much much more valuable as we have seen that dramatic reversal.  
Some of the hedge funds in describing the current situation have talked about a paradigm shift. It has been a complete paradigm shift when after a century of slowly declining commodity prices we have suddenly seen this dramatic reversal. Of course the reason for the reversal is that the planet is finite. It is pretty simple. What we have found is that there is a big increase in demand coming out of China and India in particular and there is limited capacity to supply that demand because of course there is not more agricultural land with access to water being created nor are there more iron ore mines being created nor is more oil being created. Those are finite resources so in the context of that backdrop we have seen a big spike in prices.  
One of the outcomes of that process is that people who want access to those resources that have become very expensive are looking at how they can secure their supply chains and New Zealand is part of the global supply chain for food protein particularly dairy protein. We have seen a lot of overseas interest in buying up New Zealand land processing facilities and agricultural processing facilities. We have seen the loss of PGG Wrightson just recently with its very valuable seed stocks and other agricultural service companies have become targets for overseas buyers. 
As the value of these commodities has increased dramatically we have seen a much greater overseas interest in buying up New Zealand land and processing facilities and the supply chains that all go with it. This means that the context for the Dairy Industry Restructuring Act when it was originally passed has dramatically changed. It is no longer the same world that it was when the Act was first put in place. When some people come to look at the situation they treat it as if nothing has changed but of course everything has changed. It means that no longer do these regulations ensure that we have a competitive domestic raw milk market in New Zealand. They do no such thing. They are not designed any more to do that—well they may be designed to do that but that is not what they are doing any more. What they are doing now is supplying raw milk to the overseas-owned competitors of Fonterra because raw milk and the dairy protein that comes out of it is incredibly valuable.  
The Green Party is a very strong believer in New Zealand production so we are very keen to make sure that raw milk is provided at a competitive price to New Zealand - owned producers based in New Zealand. We want to support New Zealand industry we want to make sure that the New Zealand raw milk market is competitive and that milk in that market is at a competitive price. If these regulations were restricted to simply providing raw milk to New Zealand producers whether it be New Zealand - owned producers even exporting or whether it be just for the domestic market then we would be supportive. But what these regulations do is ensure that raw milk is provided at effectively a subsidised price to the overseas-owned competitors of Fonterra who then transform that raw milk into the products—mostly milk powder but not only—which then compete against Fonterra in Fonterra’s overseas markets.  
This is what has changed between the original Dairy Industry Restructuring Act and this bill that we are considering at the moment. The problem is that people have not realised that the world is no longer the same so they are treating the dairy market as it used to be. Part of what stands behind this is we do not want to upset our trading partners. Part of the regulation of the New Zealand dairy sector is to make sure that we do not upset our trading partners and do not attract any kind of World Trade Organization action because of uncompetitive practices within our domestic dairy market. These provisions are in place in order to try to knock aside any attempts to challenge the regulations governing the New Zealand dairy market.  
But of course what has happened is that in the past because New Zealand was promoting relatively cheap commodities it was in our interests to try to break down trade barriers all around the world in order to get those commodities into those markets. But now the exact opposite is happening. Those markets are desperate for New Zealand dairy products. The Chinese are not consuming a lot more of New Zealand dairy produce because of our free-trade agreement with China. They are consuming a lot more of our dairy produce because they need it because it is clean and safe—particularly safe after the melamine scandal—and because they need access to the food protein.  
Globally what we are seeing is that food protein is in shorter and shorter supply and it becomes more and more valuable and those markets where previously we were trying to overcome barriers to get our food in there actually are desperate for our food and really want our food. So the whole global context has changed. It is kind of like saying back in the 1940s the 1950s or even the 1960s if we look at the oil market countries all around the planet wanted oil. They were desperate for oil. The problem with oil was not that there was a trade barrier to oil. People were buying oil because really needed oil. Other commodities are now becoming more and more like oil because we have a global shortage of those kinds of food commodities. Other countries really want New Zealand primary produce and that is one of the fundamental things that has changed.  
The concern that we have to let overseas companies buy up our land let overseas companies buy up our processing facilities and have these regulations in place all of which are designed to stop any World Trade Organization action against New Zealand all of which are designed to maintain a multilateral trading environment in which we can get our goods into those markets has been turned on its head. Now those markets are desperate for our goods. Orienting our entire dairy industry regulations around the concept of trying to avoid World Trade Organization litigation by making sure we sell off our land to overseas owners without breaking our World Trade Organization commitments making sure we allow Synlait to be bought up by overseas owners and have these dairy industry regulations in place so that we do not upset our World Trade Organization commitments all of that has been turned on its head.  
Now we are in a powerful position because we have access to something that people want. In fact what we should be doing is looking after that valuable thing. We should be preventing the overseas buy-up of our land and preventing the overseas buy-up of our processing facilities and our agricultural servicing companies. We should be protecting Fonterra and not making it subsidise its foreign-owned competitors in New Zealand through the Dairy Industry Restructuring Act and the amendments that are before us now. It is by understanding how the world has changed in the last decade that we can understand how fundamentally ill-conceived this particular amendment bill is and how fundamentally ill-conceived the framework of the dairy industry in New Zealand is at the moment. The Green Party will not be supporting this bill. 
RAHUI KATENE (Maori Party—Te Tai Tonga) 
: 
 I will take just a brief call on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill which seeks to extend the market share thresholds for the expiry of pro-competitive provisions in the Dairy Industry Restructuring Act 2001. The bill also provides for a new process for the expiry of the pro-competitive measures when the new specified market thresholds are reached. 
The key driver in this bill is that there is unlikely to be sufficient competition in the dairy industry to ensure the efficient operation of New Zealand dairy markets and I want to put forward an alternative frame. The lack of domestic competition in New Zealand has I suggest little to do with a lack of local market profits. The barrier to entry is straightforward and well known. It is related to the monopoly domination of Fonterra and the undue influence it controls both in terms of cost lines and milk and its revenue line—that is its retail prices. 
James Wheeler the acting chief executive of the Federation of Maori Authorities in a recent letter stated it quite clearly: “Fonterra are in a dominant position originally created to compete with the world rather than this be used internally against suppliers and processors. Their track record of being the recipient of numerous complaints against uncompetitive behaviour to the Commerce Commission indicates that Fonterra actively works against independent suppliers.” In other words Fonterra’s dominance means that it effectively controls both ends of the business because of its scale. It is able both to set the cost of milk and to control the retail price’s revenue which in effect might have the undesirable result of squeezing any other domestic players out of the market. That is the unique power held by Fonterra and this legislation is undeniably influenced by its monopoly stronghold on the consumer market. 
Every party in this House is aware of the intense level of public concern about milk prices and the level of competition in our domestic dairy market and this is essentially where we must agree to differ from the Government on this bill. Although we might accept that the changes proposed in this bill do not affect the particular issue about the price of milk they do fall into the wider context under discussion—that of milk price and domestic competition. I recall a statement made by Kingi Smiler the chair of Taupo-based Miraka Ltd 2 months ago. Mr Smiler in his submission about Fonterra’s Trading Among Farmers proposal noted: “As a majority Maori owned company we are in the dairy industry for the long haul as our land cannot be sold. It is therefore vital that any change to the competition rules to assist Fonterra preserves the integrity of the system for the benefit of everyone.” This is the essential balancing of interests that we believe has been ignored in this bill. 
Although the Minister may suggest this bill is necessary to ensure a stable milk market while the broader issues of the matter are being considered our view instead is that while the Trading Among Farmers proposal is out there changes to the governing legislation will bring with them an undesirable level of risk. That is of great concern for Maori because as we all know the Maori Economic Taskforce last week released a report by Business and Economic Research that pointed out the Maori asset base. We know that agriculture forestry and fishing—in fact primary produce—is a huge area for Maori investment. With Maori getting more and more involved in the New Zealand economy it is very necessary that we have a competitive environment and that we do not have monopolies that are keeping the industry held by the throat as it is now. We cannot support this bill while that is happening and while such levels of anxiety exist in the dairy industry sector. Thank you. 
COLIN KING (National—Kaikoura) 
: 
 It is a pleasure to take a call during the third reading of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. I remember last night we had some great conversations about the sunset provisions and we said that some time ago the Labour Government was actually saying the primary sector was a sunset sector. From that point of view it is very good that we are actually debating here. When listening to all of those speakers we heard the Labour speakers talking about the environmental degradation that dairying is causing we heard the Green speaker talking about farmers gouging prices and making unscrupulous profits and we heard the Maori Party speaker talking similarly. But the point is that unless our farmers are making a profit this country is in pretty poor shape. 
This bill is purely focused on giving certainty in the meantime in relation to provisions tied up in the Dairy Industry Restructuring Act. On that basis we can be very confident that National looks towards research and development and to sciences to address a lot of the problems that confront the primary sector. We are investing many millions of dollars in the Primary Growth Partnership and we are very very proud of the Global Research Alliance on Agricultural Greenhouse Gases which brings together 23 nations to look at solutions that will impact going forward globally. We export 85 percent of what we produce and more often than not as they say the person who pays the piper calls the tune. The fundamental doctrine that this bill is based on is the fact that we want access to various markets. Although we hear a lot of debate about the comparison of Coca-Cola with milk the substance of this bill addresses a lot of our trade access issues. On that basis I have pleasure in supporting this bill. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 This MP on this side of the House definitely does not believe that the dairy industry is a sunset industry. I explained that last night too.  
I support the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill and Labour supports this bill because it is clearly very appropriate that we extend the market-share threshold for the expiry of the pro-competition provisions in it. The dairy industry is our primary export industry. In the given international economic environment I believe that the industry is really helping our economy and our living standards in this country.  
I have a number of points I will make. The first one is that clearly it is rather interesting that the Minister of Agriculture said after the first reading of this bill that there would be a review of the Dairy Industry Restructuring Act. I wondered why he could not wait until after the results of that review were available before he introduced this bill so he could incorporate into the bill some of those results. Be that as it may I am pleased to say that this bill certainly allows farmers in the South Island particularly in the West Coast Regional Council’s area to now be part of the wider picture in terms of the supply of milk.  
It is interesting that when we were hearing submissions on this bill there were clearly two schools of thought. Fonterra was on one side and the rest—the private independent producers or processors—were on the other side. Fonterra was clearly not very keen that it had to supply discounted milk to the independents. But the independents were clearly keen to see more of this milk available to them so that they could add value. This is interesting because a lot of those independents—Synlait Tatua South Island cheese makers and others—came along too. They want to add value to the milk produced in New Zealand so that they can get some more markets overseas. Of course the Fonterra side was clearly not happy with the fact that a lot of these independent processors have not really added as much value as they suggested they would to get some new markets. There was quite an interesting debate among them about that at the time. This bill and the philosophy of the Dairy Industry Restructuring Act is to increase competition so that hopefully we can get some more companies—more processors—to add value in our overseas markets.  
As we get more into markets such as China India and the rest of Asia I think there will be demand for additional processing for niche areas. I hope the independent processors will make efforts to do that because Fonterra and the farmers are saying that after the years of research and development they have put into developing this industry here come these new processors many of them with overseas interests involved using the intellectual property and the research and development that has been done over years not only by our farmers and farming community but also by universities and research institutes. Fonterra and the farmers are saying that the new processors get the benefit of that but do not actually create the niche markets that they said they would. That has been an interesting argument and I think that argument will continue among those producers because clearly we want more high-value products to go overseas so we can get more of this milk processed just like meat. We want more of this milk processed here onshore so that we can add more value.  
At the same time there is an issue about price. When one looks at what is happening in Australia one sees that milk is being sold for $1 per litre and in this country we are paying more than $2 per litre. Again I hope this competition will increase—there is the sunset clause as somebody said to change the goalposts. I hope that we get some more competition so that prices come down because living costs at the moment with prices going higher all the time are not good for consumers who are suffering.  
We invited some time ago a professor from Massey University Jacqueline Rowarth to the Primary Production Committee to tell us what was going on in the agriculture sector. We invited her earlier to talk about agricultural education. Where is the problem in terms of agriculture not doing so well? I clearly remember her saying that the problem is that farmers are not getting a high enough price on the farm. I think it is very important for us going forward that we analyse the situation. Where are the problems in our economy particularly with agriculture? She came up with a very researched view that the problem is that our farmers—be they dairy meat or wool farmers—are not getting a high enough price for their products.  
The problem is that it is the middle people whether it is the processors or the supermarkets who are really creaming it off. I think that is an issue that Parliament the Minister and others involved should be concentrating on: how we can add value to what the farmer is getting within the farm gate rather than what is happening with price-gouging in the supermarkets and in processing. We can have all this competition but in the end if the farmers are not getting due value on their farm we will not make a lot of headway. 
I will also make a couple of further points. Going forward as we increase our animal production—particularly dairy—we need to make sure that the environmental impacts are also considered very seriously. I see in the statement from the Prime Minister that there will be some impact from increasing dairy numbers but not a big impact. I really take issue with that. As a scientist I can say that I foresee that the real problem in terms of utrification of our lakes and streams is that we will get more and more of this downpour and source pollution and more nitrates solids pesticides and chemicals will go into our lakes rivers and streams. We need to do more research into that. We need to understand the dynamics because over time if our rivers streams and lakes are more polluted then as we engage with overseas buyers they will come round and have a look at what we are doing. 
A lot of what we do in terms of dairy industry mechanisation and productivity we do very well. But I am really worried about the impact going forward. We—and the Minister—need to put more funding allocation from the Primary Growth Partnership into some of these research areas so that we can understand what is happening in the industry. As I have said on a previous occasion in terms of animal treatment and the issues we dealt with earlier with animal tracing—we have the National Animal Identification and Tracing Bill coming soon—I think this issue is similar in terms of the context we have with the overseas market. With those words I say that I am pleased to speak on the bill. I commend the bill to the House. Thank you. 
CRAIG FOSS (National—Tukituki) 
: 
 I have just a couple of points. I appreciate and thank the previous speaker Ashraf Choudhary for his endorsement of the bill that was before the House previously for the Environment Protection Authority formation. The issues he talked about were exactly some of the issues that the new body which many of his colleagues were opposed to will deal with but I am glad to hear that he supports it. That is very good.  
The previous speaker bemoaned the fact that with the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill there may be Chinese investors investing in the New Zealand dairy industry. I remind members that the China free-trade agreement was initiated under the previous Labour Government and formalised and signed by the National Government. The point is that when the Labour Government initiated those discussions and negotiations such issues were on the table and were discussed negotiated and forecast. So it is interesting to hear that the other side now does not want investment from China—the same country that Labour initiated the free-trade agreement with. Labour got the free-trade ball rolling with China and that to be fair has served New Zealand so well. There seems to be a contradiction there.  
Another speaker talked about returns to farmers not getting to the farm gate. That is quite right but of course dairy farmers are also shareholders in the distribution and facilitation agency Fonterra. That is how they share in the upside of that industry. Maybe some more thought needs to go into those points.  
I am on the Primary Production Committee. I particularly enjoyed the discussion and what the bill has achieved. I acknowledge the majority of members from the other side who are voting for the bill. The bill sets new market-share thresholds and new changes as other members have spoken about for the North Island and South Island. The bill brings in the West Coast of the South Island as part of the South Island. It may be news to West Coasters that they were deemed not to be part of the South Island but subsequent to Mr Chris Auchinvole coming in they are now part of New Zealand. That is an improvement and an upgrade from the MP there.  
We also had an interesting discussion about milk solids versus raw milk. I particularly enjoyed that discussion. I learnt a lot from my learned colleagues who are involved in the industry. The committee came together on many of the issues. Many speakers also acknowledge that a great review of the industry is going on which Minister Carter recently announced. We all look forward to that. I also look forward to it coming before the select committee. Thank you. 
IAIN LEES-GALLOWAY (Labour—Palmerston North) 
: 
 We are almost coming to the end of the debate on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill which is a reasonably technical bill but nevertheless very important for New Zealand’s dairy industry. We in the House all know and acknowledge that the dairy industry is a huge driver of our economy and an important component of our economy. Certainly in my electorate of Palmerston North although it is virtually wholly urban—I think I could just about count on one hand the number of paddocks we have in the electorate—the fact that we have Massey University the Crown research institutes Fonterra carrying out its research and development and a very large service industry in the electorate means it is a pretty big deal to my constituents that we do everything we can to ensure that the dairy industry is able to operate efficiently and appropriately in this country.  
The bill seeks to do that by extending the period of time during which Fonterra must provide fixed-price dairy solids to other dairy processors in order to foster competition in the domestic industry. The original Dairy Industry Restructuring Act which was enacted in 2001 set a sunset clause for this requirement in terms of market share of dairy processing but at the moment there just is not the confidence that when this threshold is met the independent processors will have developed enough to keep the market competitive. That is why these new sunset provisions have been brought in by the Government and why the Labour Opposition is very very happy to support the bill.  
We want to see a healthy domestic dairy processing market so that consumers potentially have lower prices available to them and of course a lot more choice. But also we are looking for much greater added value to our dairy primary products and to all our other primary produce.  
We have some reservations about the bill. These have been discussed at some length during all readings of the bill and last night in the Committee of the whole House. We have some reservations about the future of the industry and how long this subsidy for the smaller operators can go on. We also have some issues with where we are going in terms of foreign investment in our dairy industry and what that means for New Zealanders’ ability to own our own future given the importance of this industry to our economy.  
It also has to be noted that a lot of people in New Zealand are very very concerned about the price of milk. A sign of good competition which is what this bill is all about is that prices come down but we have seen the price of milk and other dairy products go up and up far outstripping any increase in wages in this country. People particularly those on middle and lower incomes who are trying to feed their families well and put good nutritional meals on the table are finding it a little bit harder because the price of milk has gone up so much.  
The threshold that this bill changes currently sits at a 12.5 percent market share of the collected raw milk for independent processors in the North Island and a 10 percent market share for South Island processors. The South Island threshold currently excludes the West Coast. That provision was changed by the Primary Production Committee which I think was a sensible change. These thresholds as they stand currently are likely to be reached about now for the North Island and about this time next year for the South Island. As I said there was just a feeling that the independent dairy processors have not quite reached the point where they can stand on their own without the support that this bill provides. Extending those provisions gives an opportunity for that industry to develop a little bit further.  
We on this side of the House were a little perplexed by the timing of this legislation. In fact the first reading of the bill occurred just 1 day after the Minister of Agriculture had announced a review of Fonterra’s obligation to supply milk to independent dairy processors. So it could turn out that all of this is ultimately for naught and the Minister of Agriculture will come back with the results of the review and throw out this bill altogether. We will find that all this good work from the Primary Production Committee and its excellent chair who is listening intently over there could be for naught. That would be unfortunate and perhaps the Government needs to make sure the left hand knows what the right hand is doing.  
The review took place last month and now we wait to see whether its findings and recommendations will make this bill redundant. Labour members wonder whether that review should have taken place a little earlier so that the bill and any changes arising could have fallen out of that review rather than the two happening in parallel. It is quite possible that we will be back here next year debating more changes.  
But we do support the review of Fonterra’s obligations to supply milk to its competitors. It is a bit of a concern that companies such as Synlait and Open Country Dairy which are owned by offshore interests are being subsidised by New Zealand farmers. We have to ensure that foreign investment into New Zealand companies New Zealand businesses and New Zealand farms—although we do not want to cut it off altogether—is actually working for New Zealand. We do not think that we have quite got the criteria right at the moment to ensure that foreign investment is working for New Zealand.  
I will make a final point regarding the price of milk. This bill is all about competition. As I said one of the indicators that competition is working well is that the price of raw milk and the price of the milk that people buy at the supermarket comes down. That is simply not happening at the moment. In fact the price of a litre of Home Brand milk at Foodtown has increased by 20 percent or 37c since April 2008. That is certainly of concern to a number of people in New Zealand and Labour wonders when the Government is going to address that.  
In closing I say that this is a good technical bill that will serve the dairy industry well. The Labour Opposition is more than happy to support it. 
SANDRA GOUDIE (National—Coromandel) 
: 
 I will not take too much of the House’s time but I do want to echo the comments made by my excellent colleagues. I particularly note the work of the chair of the Primary Production Committee Shane Ardern. He has done a magnificent job and probably has one of the greatest understandings of the agricultural sector of anyone in this Parliament.  
I also acknowledge every single one of our primary producers in New Zealand because it is on the back of their hard work that we are able to afford things like health education law and order and of course the protection of the environment. I say to all our primary producers and the agricultural sector that they do a magnificent job and long may that continue. 
A party vote was called for on the question  
That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a third time. 
Ayes 107 
New Zealand National 58; New Zealand Labour 42; ACT New Zealand 5; Progressive 1; United Future 1. 
Noes 15 
Green Party 9; Maori Party 4; Independents: Carter C Harawira. 
Bill read a third time.