O'Connor Damien: Dairy Industry Restructuring Amendment Bill — In Committee 
Text is incorporated into the Bound Volume 
O'Connor Damien: Dairy Industry Restructuring Amendment Bill — In Committee 
[Sitting date: 17 July 2012. Volume:681;Page:3570. Text is incorporated into the Bound Volume.] 
Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) 
: 
 This is clauses 1 to 3 “Title” “Commencement” and of course “Principal Act”. We are familiar with the principal Act; it was one that we engineered and negotiated through in 2001 and we were quite proud of the fact that as a Labour Government we were once again passing a significant piece of legislation for the dairy industry. In fact if you go back to the 1930s under Labour the 1950s under Labour and of course the 1980s where we removed subsidies for all sectors Labour has played a big part in dairy industry legislation. And of course in 2001 the Dairy Industry Restructuring Act the principal Act was passed to set the company up. 
 We cannot support this legislation the Dairy Industry Restructuring Amendment Bill and it is with sadness I guess that we find ourselves in that situation. If the Minister for Primary Industries had seen his way clear and the Government had perhaps backed what it says rather than covering its real agenda then it would have supported the Supplementary Order Paper to limit the fund size. But the Minister and his colleagues clearly have other agendas. 
The title of this legislation will be the Dairy Industry Restructuring Amendment Act 2012. I am tempted to put forward an amendment that would change the title to the “Dairy Industry Destruction Act” because I have no doubt that this bill will lead to a build-up of internal tension within Fonterra as the focus of the board and the focus of management shifts from one of maximising the return to dairy farming shareholders through milk price and through dividend streams—less focus on dividend—and regardless of that division the farmers ended up with all of that return. That will change. 
The commencement date which is laid out here says “comes into force on the date specified in an Order in Council”. Perhaps it will not come in. Perhaps the fund size will not reach $500 million and within the 2-year provisional period it is possible if dairy farmers are concerned enough and express their concerns through the Fonterra Shareholders’ Council that this may not go ahead. Fonterra has been talking to another group and it has been talking out of both sides of its mouth I would have to say. On the one hand it has been talking to the farmers reassuring them about milk price and on the other hand it has been talking to potential investors assuring them about the dividend streams. Actually if one of those two groups spoke to the other they would find that the messages are somewhat conflicted at times. Mr Chairman this relates to the commencement date in the bill here; I do not want to stray in any way from these three clauses. The commencement date does depend on the Order in Council or the conditions of Trading Among Farmers being met and as I say they may not be met and this “Dairy Industry Destructuring Act” may not come into being. 
Mark my words: this legislation will see the destruction of the cooperative of Fonterra and I say that with sadness. The Minister in the chair the Minister for Primary Industries laughs. This is the same Minister of course who is insisting that local councils sell down their assets the same Cabinet Minister who is insisting that we sell 49 percent of our State-owned enterprises on to the stock market. It is little wonder then that he makes a joke of what will be building internal tension within Fonterra that will lead regardless of any constitutional limit to changes that over time will see the loss of our biggest company. 
Shane Ardern the chairman of the Primary Production Committee who has done a very good job—as good as he possibly could inside a National Government—to bring about a fair piece of legislation knows full well too that without the legislative cap the fund size will blow out and the influence of those investors will overtake the interests of the farmers. In fact if you look around the world farmers are either peasants or highly protected. In this country they are in a unique situation and the structure that has been Fonterra has enabled them to grow and succeed like no other company in this country. 
I do fear that the title of this bill is misleading that the commencement date will be a sad day when we see this opening of Fonterra to outside investors and for the principal Act which we were quite proud of—and it was not perfect. It was not perfect. The fair-value share has created tension that needed to be addressed and there were ways of doing that. I acknowledge that. But the way that we are talking about doing it here the introduction of Trading Among Farmers and the opening up to the market of the share value of a cooperative is quite unique internationally—quite unique. It is a model that has not been tried anywhere else. In fact putting the share value of a cooperative out into an open market for investors is not done anywhere else. This will be unique because the fungibility—that funny word that we have all had to learn about—is designed to ensure that whatever unit investors decide is a fair price will be the price for the shares of Fonterra. And if as some of the submitters say that share price rises on the back of increasing dividends then there is a potential for us to see the wash-out of many Fonterra farmers and the undermining of their milk supply base. And the member over there who chairs the select committee knows full well what that means for a company. 
There are many many dangers that the open-market trading of units has created for Fonterra the cooperative and the sooner that is acknowledged and understood the sooner the farmers will realise what they are getting into. They have a chance. The Fonterra Shareholders’ Council has yet to endorse it. It could stop the commencement date of this legislation—that is clause 2—by not endorsing Trading Among Farmers. It is up to the shareholders’ council now. The Minister laughs but actually there is a legal requirement for the Fonterra Shareholders’ Council to sign off on this. It has not done so yet. It may be if it is listening and thinking that it might start to realise what it is actually signing off on. 
We do not support the bill. We do not support these three clauses because we think that they are actually misleading the farmers as to what indeed they are getting themselves into.