Muller ToddTODD MULLER (National—Bay of Plenty): Well that was a little heavy going I'd have to say—probably was for people listening over the television—but I will try and add some perspective to it. Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill—we're here at the second reading. So I will say from the outset that the National Party will support this bill. We supported it—Anna Lorck: Thank you very much Todd.TODD MULLER: My pleasure. We supported it through the select committee process but I have to admit that—as I sat through that process on behalf of the National Party with my great colleagues Nicola Grigg and Tim van de Molen—this is really a solution trying to find a problem.Angela Roberts: Tell that to the Fonterra shareholders.TODD MULLER: They say Tell that to the Fonterra shareholders." So I will unpack that a little bit. The elements of the Fonterra request were saying "Hey look we want the opportunity to manage our own capital structure. We've run an extensive process through our own shareholder base. We've agreed that we would like to make these changes that essentially decouple the unit fund from the shareholder fund. And we would like to be able to make a couple of amendments to make that happen."Now to your point of interjection had the Government simply said "Yes that's fine. That makes a whole lot of sense. We'll do that." we could have run with this; my speech would be shorter and I would be saying "Well done Government. You've actually got the balance right." But no as is often the case when it comes to issues relating to the dairy industry and to Fonterra in particular now we need to have this significant debate again around what additional powers we need to put in for the Commerce Commission to assure ourselves that the milk price manual and the milk price itself is not in any way being distorted.This has been at the core of the perspective that Minister O'Connor has brought to the dairy sector for 20 years. Right when Fonterra was established back in 2002 he had a very strong view that because it had significant and it does have significant market power there wouldn't be a regulation or a constraint or a rule that couldn't be imagined to make it harder for them to be able to land on a milk price in terms of their disclosure requirements—of their requirement to be able to show what they do and how they calculate it—directly to the Commerce Commission annually. And this has been the tension with a business that has this scale: what is the appropriate regulatory balance—or constraint if you like—that needs to wrap around their organisation? Here we have a scenario where Fonterra says "We've done the consulting. We want to make this change to our capital structure. We want the ability to do that." but oh no on direction from the Minister the Ministry for Primary Industries has to come with a whole lot of additional obligations with respect to the milk price.Just let's have a look at some of those. Now we have an independent chair. We have two members appointed by the Minister because apparently the previous model where there was one appointed by the Minister wasn't independent enough; so we needed to have two more. The Commerce Commission which reviews the milk price annually and has done for the last 10 years not only the milk price but also the manual—for 10 years the Commerce Commission has pored over the processes that happen internally to make sure that the milk price is calculated in the appropriate way. And over 10 years there have been two changes which have seen a change in one year of 1c and in the other year of 2c. So as opposed to looking at this and going "Actually it sounds like we've got the appropriate regulatory scrutiny right here." the Government says "No we want more independence that has to sit in that milk price panel." Of course not surprisingly Fonterra's competitors say well that move to more independent directors isn't enough; there should be a whole lot more than just the effectively three that there are at the moment.So what else has this Government identified through this process? A huge obligation on Fonterra to report to disclose its approach with respect to the calculations and some of that frankly from our perspective as a committee actually went too far. So in the amendments that we as a committee have decided make sense—in the proposed new section 150JA(2) which focuses on non-sensitive information—we defined that to enable Fonterra to be able to withhold information that was commercially sensitive and to withhold information that was legally privileged and also protect the privacy of a natural person.There are huge enforcement clauses around the powers of the Commerce Commission with respect to the milk price manual the calculation of it and the disclosure regime that sits around it including a very onerous clause that proposed new section 150ZA which would allow the Commerce Commission or any other person beyond the Commerce Commission to seek an injunction against essentially Fonterra for contravening Subpart 5 or 5A or any of the subsequent regulations. After testing the officials' thinking on that the officials came back and said well actually that was not part of the policy intent to grant third parties the right to take direct enforcement action against Fonterra or seek damages in relation to Subpart 5A of Part 2 which is essentially the milk price regime.There was a section 150ZB that would extend existing liability for damages for contravening the milk price regime and its regulations made under section 115 and also to apply to contravening Subpart 5A and we as a committee decided that it would not be appropriate for the Commerce Commission or a third party to seek damages for a breach in those provisions. So a new section 150ZB has been suggested.We have made some changes with respect to pecuniary penalties and I think ultimately we have got the balance in a reasonably adequate way. I mean I know that there will be those who are Fonterra competitors who would—[Interruption]TODD MULLER: Take a call. I'd love to hear your contribution!Anna Lorck: I am.TODD MULLER: Oh good! I'm sure it will be phenomenal!I am sure there are those who are listening who will say "Well you know have you got the balance right for protecting the smaller players?" Well look those smaller players have come in over the last 10 years. Initially the expectation when these regulations were established was that they would be focused on the domestic market. None of that has happened of course. They have appropriately I guess commercially fought Fonterra for the supply to then take them on in the market. And that's the market working. So when you look at those suppliers and the balance sheets of those suppliers to the extent that you get visibility on it and where they compete against Fonterra in the world of course they're going to say that any additional constraint and obligation and cost and compliance that can be put on their competitor they are going to welcome.Understandably of course Fonterra pushed back pretty hard about that and at the core of their frustration—which I have a fair amount of sympathy with—"We want to change a capital structure. We go to do that. Yet again no; we have a list as long as your arm of additional obligations and costs that we have to wrap around our milk price manual and calculation." Bearing in mind that this is the same milk price manual and calculation that has had 10 consecutive Commerce Commission reviews that have essentially found nothing. So you've got to wonder whether a lot of this is actually needed and is really just an exercise as I said of a solution looking for a problem particularly on the milk price side of the equation.But hey we will support it. It has been as always a robust but collegial select committee process ably chaired by Jo Luxton. We all get the opportunity to hold a view and to test the thinking of both the various submitters and also the officials. So whilst it was a truncated process I think it has landed as I say in a reasonable place and the National Party will support it in the second reading."