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:3565. Text is incorporated into the Bound Volume.] 
Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) 
: 
 Thank you Mr Chairman. I do not think for a moment that you do not have the ability to push it hard; it is just what comes out at the end that I am worried about. I will refer to Part 2 of the Dairy Industry Restructuring Amendment Bill which contains transitional provisions that refer back to new section 109A and other provisions of the bill. The provisions are actually quite far-reaching. I will refer to just one particular point in new section 109D which relates to the Order in Council and what the trigger points are for the introduction of Trading Among Farmers or indeed if the fund was to be dissolved or cease to operate. 
One of the requirements put in there is the fund size: $500 million. I would like to take the opportunity to put on record here how that figure was arrived at. Firstly 2 years ago when farmers voted on Trading Among Farmers it was trading among farmers of their own shares and they supported that in principle because they believed that that was what was going to happen. There were issues of liquidity raised by some of the officials over here who know competition law that if all farmers wanted to trade their shares at once no doubt the price of those would drop. So they came up with a cunning plan which was to have a unit fund which was to provide equivalence and fungibility. Fungibility is a word that I had not really made myself familiar with prior to this bill but I understand it now. The issue of why $500 million was chosen which equates to about 8 percent of Fonterra’s equity at this point in time is that it was just a figure plucked out of the sky. It is one that officials estimate will provide enough liquidity to ensure a fair fungibility and hopefully some stability in the share price and the unit price. I think they have got it wrong because the unit owners are just going to want one thing and that is the price to go up and the dividend streams to flow. 
Aside from that can I go back to the key point of why $500 million was chosen because some farmers are asking why we do not just go back to the concept of Trading Among Farmers—that is we trade shares among ourselves as we see fit and need to and if there is a liquidity issue then we start off with a smaller fund size. Indeed the proposition put to me was that farmers themselves could fund a fund; they could buy the units of maybe $100 million or $200 million. In the dairy industry that is not a lot of money. But the insistence of Government officials—the Minister and his officials—was that it should go to a minimum of $500 million and indeed without my amendments there would be no maximum in legislation. So we have in legislation a minimum fund size of $500 million regardless of whether it is necessary to have Trading Among Farmers of their shares. So we have forced upon Fonterra or forced upon the farmers a fund that is open to outside investors on the basis that we have to do this to have liquidity. Well if you buy into that why not at $200 million? They will always put up the argument in a drought year or in the exception year etc. 
Well can I put on the record that in one of those exceptional years there is redemption risk still for Fonterra. It has admitted that and the chairman Sir Henry van der Heyden stood up time and time again and said that this was about removing redemption risk once and for all. That was a lie. That was a lie and he knows that because it leaves in place redemption risk for Fonterra. Let us be clear about that. It reduces it from a maximum of an estimated $800 million back down to $200 million but the redemption risk remains in the exceptional event that officials have negotiated and I guess calculated for. In that exceptional circumstance $500 million $1 billion—who knows—might be required. But the question put to me is why we should be legislating for a minimum fund size when we are not legislating for a maximum. 
Well that supported my Supplementary Order Paper into the House. That is why I brought to this House my Supplementary Order Paper 85 to ensure a maximum fund size which to some extent counters and balances the argument that officials put up to the Minister for Primary Industries—and he swallowed—that we needed a minimum $500 million unit fund size. These are the transitional provisions in Part 2 and there are many questions flowing on from that that the Fonterra Shareholders’ Council should now start to ask. We will not support this bill because the Minister and the Government have blocked our ability to have a maximum fund size. Many of the farmers who voted for Trading Among Farmers believed there was going to be one. 
There is talk of a vote in November that might reduce the cap from 25 percent to 20 percent. I do not trust the process quite frankly. I do not trust the process I do not trust Fonterra and I do not trust this Government. This Government has embarked upon a process of State-owned enterprise sell-offs and of “strengthening the capital markets of New Zealand” which was in the explanatory note of this bill. It is determined to get a chunk of Fonterra—as big a chunk as it possibly can—on to the New Zealand Exchange because the chairman of Fonterra the ex-chief executive of the NZX and the Prime Minister are good mates. In fact the chairman of the NZX now has been and is involved in investment companies with the chairman of Fonterra. 
These things are not widely known by farmers but they should be. They need to know where this might head. This is our single biggest most successful and wholly New Zealand - owned company—Fonterra a cooperative—and the transitional provisions in Part 2 that we are referring to here may lead to the loss of control and ownership of that and farmers need to be aware of that. The Fonterra Shareholders’ Council has yet to sign off on Trading Among Farmers. It should be fully aware of what is hidden in this legislation and ask the question why the Government blocked my Supplementary Order Paper which would have capped at a reasonable 23 percent of the share value of Fonterra the fund that will trade units that will be able to be purchased by outside investors because I do not know that it fully understands that. 
It may be because the Prime Minister said that he thinks that Fonterra on the stock exchange would be a great idea. It may be that the original intent as stated in the bill to strengthen the capital markets of this country is the objective of the Minister and his Government not indeed to grow Fonterra because actually this does not in itself provide Fonterra with any more capital. It does not in itself provide any more incentives to innovate or create more value-added products and the chair of the Primary Production Committee knows that. What this does is open the door to outside investment in the naive belief that analysts of the New Zealand Exchange will provide the discipline to drive better management of Fonterra. Well if you have a look around the country at the failed companies and at those that have been sold offshore or that are failing at this moment and have a look at what analysts have said over the last 10 years of NZX companies I think you would fire the whole lot of them. 
Part 2 of this bill here contains transitional provisions. It enforces and relates to Orders in Council and the ability for the fund to be wound up if these conditions are not met. I think that if we did not reach the $500 million fund it would be a great outcome. It would actually mean that the farmers of Fonterra had the opportunity to go back and work on a different way of addressing redemption risk because they are not eliminating it through the passage of this legislation and the setting up of Trading Among Farmers; they are reducing it. There are other options to reduce redemption risk which we accept are there. The options are there and the redemption risk is there. The simple fact is there has not been enough debate and robust debate on those options. 
The previous speaker Mr McKelvie—