O'Connor Damien: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
O'Connor Damien: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
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Hon DAMIEN O’CONNOR (Labour) 
: 
 I guess that this gives us the opportunity to go through the nitty-gritty detail of the legislation which we have all agreed we support. Once again I have to raise what I guess is the urgency of the situation. As the Acting Leader of the House probably knows and as the Committee definitely knows unless we get this legislation passed by midnight the dairy industry will be in trouble. It is not quite sure how it will then supply milk or what system it will use to supply milk—up to 600 million litres of milk. Actually I do not think that too many people out there will understand how much 600 million litres of milk is. It is a hell of a lot of milk and producers want to know what they are to do with it. 
Shane Ardern 
: It’s a few tanker loads. 
Hon DAMIEN O’CONNOR 
: It is a few tanker loads and if it is not dealt with properly it becomes a huge burden and one might say an environmental dilemma. 
I will take the opportunity to go back to the regulations. The legislation was passed in 2001. In 2008 through that process we became aware that there were difficulties in pricing the milk for the people buying it—that is Cadbury’s Open Country Cheese Co. and Tatua. It was not the Westland Cooperative Dairy Co.—not yet anyway. All the companies purchasing it for value-added purposes for the most part or for domestic milk supply were not quite sure whether they were getting a fair deal whether they were paying too much whether Fonterra was getting ripped off or whatever. 
In Labour’s wisdom as we always were wise as a Government we conducted a review. It identified three main issues. Firstly the wholesale milk price formula systematically underpriced regulated raw milk—that is the farmer-supplier shareholders of Fonterra were effectively subsidising the companies that purchased the milk from Fonterra. They could get on the phone ring Fonterra and say: “We want a tanker load of milk.” which is a huge privilege for any business dealing in a perishable product. They could do that then not ring for a week or two but Fonterra had to process that milk that kept coming out of the cows’ udders. 
We must understand—and many out there probably do not; a lot of young kids think that milk comes from bottles which is understandable if one has been brought up in the city—that cows need to be milked twice a day. In fact there is one farm down in Oamaru milking 2.7 times a day but we will not go into the detail of that. In very efficient production systems it is up to three times a day. For their own welfare cows need to be milked. The milk has to be taken from them and processed somewhere; there is an obligation on Fonterra to do that. The original legislation said that it had to take the milk from the farmers who were supplying it. The companies that wanted up to 400 million litres or up to 500 million litres as it was at the time could ring up and get it when they wanted it and not get it when they did not want it. That placed a huge burden on Fonterra and its shareholders to build the stainless steel with the potential to process that full amount of milk when it might come from the cows in the peak of the season not knowing whether someone would ring for a tanker of milk or not. That is a huge impost on the system. It is a cost and the review of the regulations conducted by the previous Labour Government identified that those people were getting the milk cheaply. Understandably the farmers were getting pretty agitated about that. They could have got another few cents a litre or a few cents per kilogram of milksolids for the milk they supplied to Fonterra. So there was a need for the Government to do something. 
The second thing discovered is that there was no system for managing the excess demand by independent processors for regulated raw milk. Some of those businesses grew and wanted more milk. They did not know whether they could come to Fonterra and get that milk or whether Fonterra would just say: “No sorry; go away.” Obviously that would place constraints on their ability to grow businesses that were often adding really good substantive and sustainable value to our milk in this country. We wanted to enhance that— 
The CHAIRPERSON (Hon Rick Barker) 
: Before I call the honourable member again I just say that this is the Committee stage of the bill. We are addressing the nuts and bolts of the bill. This is slightly different from previous debates. This bill has been to a select committee and has come back with a select committee report. I know we are going across the bill but I want to start as we intend to continue and not have wide-ranging speeches. I just want to bring the member to the contents of the bill. 
Hon DAMIEN O’CONNOR 
: Thank you Mr Chairperson; I respect that. I guess I am trying to give some context to a bill that for many people seems to be rather minor but a huge transfer of wealth was taking place and that needed to be addressed. Everyone in this Chamber who has any connection to the dairy industry knows that farmers were demanding it but farmers are disappointed that it has taken so long to do it. 
The legislation that was drafted and put to the Primary Production Committee did not require a huge amount of amendment because I think we had all agreed that we needed to address the issues. The third issue identified in the review was that there was an unmanaged transition risk associated with the prospective ending of the Fonterra statutory obligation to supply raw milk. At some stage those people building their businesses could actually have lost all supply so we had to bring in a fair system. 
An auction is an obvious way of addressing that and this bill effectively sets up an auction process for raw milk. We applaud that because there were companies involved such as Synlait; New Zealand Dairies which has Russian shareholdings; Open Country Cheese with Singaporean shareholders; Goodman Fielder; and Cadbury’s. All these companies were taking milk from shareholders and we needed to make sure they were paying a fair price for it. 
I will go back to the legislation as you have advised Mr Chairperson and look at some of the submissions that came before the select committee. These are submissions relating directly to the bill. I cannot help but refer to the wise words from the Westland Cooperative Dairy Co. Ltd. That company has stayed outside the Fonterra structure. It is an independent company. It was until recently the second-largest processing company processing about 2.5 to 3 percent of the milk in this country. It decided to stay out of Fonterra. It firmly believed in and supported the single-desk structure—that is that we should have one seller offshore. But it stayed outside because it thought it would lose control of its destiny and be controlled by Auckland which I think was very astute and very visionary of that company and I think that many farmers accepted that. That company came to the select committee brought its submissions and it was upfront and honest. It supported Fonterra’s position that there should not be an obligation to continue to supply up to 600 million litres of milk to those companies. Fonterra believes that time has moved on and that many of the companies taking milk should be working on a process of ensuring their own supply. I agree with that. If companies are big enough and mature enough—be it Open Country Cheese Synlait or Cadbury’s—they should sit down and negotiate with farmers to secure supplies. 
Hon David Parker 
: That’s what Cadbury’s used to do. 
Hon DAMIEN O’CONNOR 
: Cadbury’s used to do that; there is no problem. In fact if companies are truly developing value-added products then they are in a position to offer a bit more to farmers and should be able to secure regular supply in normal commercial arrangements. So Fonterra believed that and Westland came to the select committee and supported Fonterra absolutely because Westland is a fair honest and very astute dairy company I have to say—not that I am of course praising people— 
Hon David Parker 
: Director Mr O’Connor?