Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Third Reading 
Text is incorporated into the Bound Volume 
Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Third Reading 
[Sitting date: 30 March 2010. Volume:661;Page:10147. Text is incorporated into the Bound Volume.] 
Tuesday 30 March 2010 
( 
continued on Thursday 1 April 2010 
) 
Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill 
Third Reading 
Debate resumed. 
JOHN BOSCAWEN (ACT) 
: 
 When the House adjourned at midnight last night I was speaking on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. Prior to the House rising the debate had broken into a general one on the dairy industry. Brendon Burns for example spoke about the so-called threat of Chinese investment in the industry the need for Fonterra to get its capital structure correct and animal welfare issues. So this was becoming very much a general debate on the dairy industry. 
This bill is about milk: the processing of milk and the making available of milk by Fonterra to alternative processors on a competitive basis. I will focus on just one aspect of the greater issues regarding the processing of milk. We have the emissions trading scheme starting on 1 July which will make a significant difference to farmers. Meat and Wool New Zealand has estimated that the cost of the emissions trading scheme on the average dairy herd will be about $10000. 
Dairy farmers may be feeling a false sense of security because no doubt they listened to the Prime Minister when he told them last November that agriculture would not come within the ambit of the emissions trading scheme until 2015. Well I have a message for dairy farmers this morning which is that of that cost of $10000 only $2500 relates to animals. The average dairy farmer with an average herd will face some $7500 in costs due to increased energy and emissions costs. For Fonterra the cost of the emissions trading scheme on the processing of milk will be some $80 million at $25 a tonne and $40 million at $12.50 a tonne. I wonder how many dairy farmers realise that in less than 3 months’ time this country will impose on them a $40 million tax on their emissions to be followed up by a further $40 million in 2013. That is in addition of course to the increased cost of the electricity that they use in processing their milk in milking sheds and the petrol that is used in dairy tankers. 
I have just come from a breakfast that was hosted for European parliamentarians who painted a very dismal picture of the future. Mr Chauvel was there. One of the points made there was that Mr Obama has just passed the health care legislation in the United States and has burnt up a huge amount of political capital in doing so. This means that the prospect of President Obama being able to push through any law that would give effect to his plans for climate change is very very bleak. When the National Government introduced its amendments to the emissions trading scheme it expected to follow other nations. Last September in this House the Minister for Climate Change Issues stood up and said we would be a fast follower. He said we would be following Australia and that the New Zealand Parliament and farmers should not worry because we would be following Australia and the United States. 
There has been a dramatic change in the world landscape in the last 6 months and I ask why this Government is to tax farmers. We have heard that Mr Ardern the chair of the Primary Production Committee is a great advocate for farmers. I ask him where he is today. Is he standing up for farmers? I do not hear him speaking out about the $40 million tax that farmers will have to pay for emissions arising from their processing activity. I do not hear him speaking out about the cost of electricity on the farm or about the impacts on farmers of the emissions trading scheme and the massive windfall profits that some electricity generators will make. It is interesting to note that the powerhouses of the dairy industry are in Waikato Canterbury and Southland all areas where electricity comes from hydro sources so there will be no tax to pay but where there will be massive windfall profits for generators. Thank you. 
HONE HARAWIRA (Maori Party—Te Tai Tokerau) 
: 
 Tena koe Mr Speaker. I will say three things before I start. First of all I congratulate David Tua on winning his fight last night. 
Peseta Sam Lotu-Iiga 
: Yahoo! 
HONE HARAWIRA 
: He is a close relation of my mate Sam over there and he is a relation of mine as well because he is from up north—a long way up north but still up north. Secondly I record my deep and abiding criticism of my colleague the scoundrel Te Ururoa Flavell for abandoning the House last night and abandoning his responsibilities to the Maori Party so that he could go to watch the fight. 
Finally however I thank him very much for leaving me this most exciting speech on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. This bill to allow milk to be allocated through an auction process sounds technical but it also allows us to acknowledge the opportunity for Maori in the primary sector. Maori dairy farmers own an estimated 100 million shares in Fonterra with some of the major players in the sector being large Maori incorporations directly accountable to their people so Maori skill acquisition research and innovation within this sector will be essential to gaining added value for existing Maori assets and for interests in agriculture horticulture forestry and aquaculture. 
I understand that this bill is basically an exercise in restructuring contracts by having auctions putting the onus on buyers to set the new price range for contracts and helping all players to get a snapshot of potential new prices that are set by the market itself which will help in how the market sees and values itself and which will help determine consumer patterns. The stated intentions of the bill are to achieve a decent price for regulated raw milk as soon as possible to ensure that excess demand for regulated raw milk is managed efficiently and to remove uncertainty regarding the price of regulated raw milk. 
But it seems that even with one clear purpose there are still very strong and differing responses from across the sector. At one end we have Paraninihi ki Waitotara which supports the principle of the bill. Mind you Paraninihi ki Waitotara is a Fonterra supplier and has been subsidising Synlait and others to date for milk they take under the 2001 Dairy Industry Restructuring Act. At the other end is Green Valley Dairies which opposes the bill because it thinks the proposed auction system will simply create ambiguity in an already volatile raw milk market and Tatua Cooperative Dairy which said the bill should be abandoned or at least delayed until there is greater clarity about the likely outcomes. In the middle we have Open Country Dairy which does not think the bill will deliver on the expectations of the 2001 Act but which will comply with the new law because regulated milk is only a small part of its operation. 
On another level I think it is also worthy to note that one of the interesting features of the 2009 economic situation was that Maori dairy farmers thought they would be less likely to be affected by the forecast drop in milk payouts than non-Maori farmers. I recall Rino Tirikatene of Ngati Hine the chief executive officer of the Federation of Maori Authorities saying that it was because Maori farmers when gearing in debt ratios were more conservative than non-Maori with debt representing 10 to 15 percent of the value of the asset for Maori as opposed to 60 to 70 percent for non-Maori. That is something my colleague the scoundrel Te Ururoa Flavell spoke about last week during the debate on securities trustees. So instead of struggling to service debt Maori farmers are able to focus on feed strategies in order to stay afloat during tough times. Clearly being able to be self-sufficient and relatively undamaged by debt burden means that Maori farmers are less likely to be forced into mortgagee sales. That is a very strong feature of the Maori dairying sector that the whole New Zealand dairy sector would do well to emulate. 
Finally I would like to step outside the milking shed for a minute to look at the broader issue of the affordability of food and dairy products for ordinary Kiwis. Although the CPI suggests that essential food prices will fluctuate from time to time the trend is for ever-increasing prices regardless of options that may affect dairy farmers and their incomes. Statistics New Zealand states that food prices went up 2.1 percent in January alone with higher prices for groceries food fruit vegetables meat poultry and fish. This is an ideal opportunity therefore to promote the bill of my colleague Rahui Katene that calls for healthy food to be exempt from GST. In fact it seems as if it is poor people who are in danger of being priced out of the market. The research confirms the high rates of child poverty poor living conditions and poor health status of children in low-income families. We note that during the last 3 years food prices have gone up more than 20 percent; indeed increases in the cost of staples for a nutritious diet such as fruit vegetables and milk have been particularly high while real incomes have risen only very slightly. It is because of these massive changes that the Maori Party is supporting Rahui Katene’s call for GST to be removed from healthy foods to make them more affordable. 
Although we will support this bill we leave a challenge for this House: it can auction milk prices if it must but it should not auction the well-being of New Zealanders by failing to recognise the very real impact of our economic decisions on those who are most vulnerable in our society. Tena koe. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 I will continue the discussion we had last night on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. First I thank Minister Nick Smith who in the nick of time made a change to a recommendation in the bill on behalf of the Minister. The bill was to come into force by 1 April which is today but at the last moment last night at a few minutes before 12 the Minister put forward an amendment to amend that and we are now able to pass the bill today. 
Secondly I am delighted that he answered some of the concerns raised during the select committee process by submitters who thought that the auction system might not be fair to processors particularly to the smaller players like Green Valley Dairies and Cadbury’s. They were concerned that the auction system might not be fair and equitable for them. I am glad that the Minister explained that last night and in particular the fact that over 300 auctions per week are likely to take place. That is a lot of auctions and there is always concern that the system may not be suitable for the small players who are processors. 
This morning I want to discuss one point that I think has not been raised in the discussions so far. My colleague mentioned how overseas buyers are interested in our dairy farms and our dairy industry. Chinese Russians Singaporeans and other interests want to buy into our dairy industry. I particularly with my science background can understand what is going on here. Milk is a highly sought-after bio-material. It is a very active bio-material. Those of us who know what is going on at the Fonterra Research Centre—the old Dairy Research Institute—in Palmerston North and across at Massey University know that a lot of research is going on into product development for pharmaceuticals. Let us imagine that upcoming countries like China India and other countries which need this biomaterial for pharmaceuticals will make pills using milk as the base with big industries developing around that. Over time those countries will add value to that product which we have as a commodity at the moment so they are looking ahead in strategic terms so that they can invest in our dairy farms and processing plants to ensure the future supply of their products particularly for pharmaceuticals and other bio-materials. 
I think that we have to be very careful when overseas interests want to buy into our dairy farms and our processing plants. In my view the dairy industry is a strategic asset in this country and we have to make sure that all of Fonterra’s production in particular is kept in our hands so that we can add value in the long term to pharmaceuticals and other products including a lot of drinks. I have had the opportunity to visit the research centre in recent times and I saw that a huge amount of material is being processed from milk into different products. In going forward we should not forget the value of milk; in this country we are lucky that we have the amount of milk we have which can be used as a bio-material for those products. That is an important point to remember. 
We have also heard a number of times that 27 percent of the export market is made up of milk and milk products. I had understood that it was about 25 percent so obviously the percentage has gone up over recent times. Clearly the dairy industry in New Zealand is important for our future and the future of our dairy farmers. We have 10500 dairy farmers and not only their livelihoods but also the livelihoods and incomes of our people in the future will be dependent on the dairy industry as more and more farms are converted to dairying. The demand particularly from Asia is going up so we have to make sure that we are prepared with new technology and a new way of doing things such as the ability to have online auctions for the export of milk overseas. 
Similarly with this bill we are hoping to introduce an auction system—and maybe over time an online auction system—for the excess milk we have. That is 600 million litres at the moment which is 5 percent of the milk Fonterra has for on-sale to small operators. I think it is important that those small processors are happy with the system we put in place. A lot of work has to be gone through in setting up the auction system and I hope there will be good consultation with processors so that they are happy with the milk they buy. Fonterra wants 10c per kilogram of milksolids as a fair seasonal value of milk. Of course some of the operators who are potential processors are not happy with that but clearly there has to be some margin. With those words I commend this bill to the House. 
Bill read a third time.