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 
[Volume:661;Page:10125] 
Hon DAMIEN O’CONNOR (Labour) 
: 
 It is an honour to speak on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill. This bill has been supported by every member of the Primary Production Committee and I acknowledge and applaud the chairmanship of Shane Ardern. As he said he is a farmer and a shareholder in Fonterra. He disclosed that up front and he has done a really good job. 
This legislation is so important because we are dealing with New Zealand’s single biggest industry. The dairy industry produces 25 percent of our exports and that is not something this House should trifle with. Any change in or consideration of the dairy industry that comes before Parliament should be considered very very carefully. Fonterra is also our only truly multinational company owned by New Zealanders. All the rest of them have large shareholdings offshore or they have bailed out completely. This is one multinational that is owned by New Zealanders for New Zealanders and it produces 25 percent of our exports. 
Fonterra is so successful that it controls almost 40 percent of international tradable products in the dairy industry across the world. That makes it a considerable player in the world of food exports across the globe. It has huge potential and that is something that we must realise if this country is to go forward. Nokia is to Finland as Fonterra is to New Zealand and we must keep it that way. 
This legislation deals with at most 5 percent of the milk produced in this country. However it is a 5 percent block of milk that is either sold at higher value through domestic consumption or goes into many value-added products. I think Fonterra and its managers and officials should be reminded that they are not the success story; in fact they have built on the success of the New Zealand Dairy Board and its predecessors in the dairy companies. There are many senior executives who think that they themselves have created this amazing company but they should be reminded on a regular basis that it has been built through the good work investment and wisdom of New Zealand dairy farmers and they have an obligation to ensure that Fonterra stays in the hands of New Zealand farmers as well. 
It is 5 percent of the milk produced in this country that we are dealing with and a number of speakers have talked about what we are doing here. Effectively we are setting up an auction system for the up to 5 percent of milk that was addressed through the original formation of Fonterra to ensure that we had competition on the local market that dairy farmers were able to enter and exit Fonterra that there was some balance to the monopoly position that the dairy board was in as the buyer of milk from farmers and the exporter and seller of milk products that there was not an abuse of that monopoly power that we had some competition in the domestic market so consumers in New Zealand had fair prices for dairy products and that farmers were not locked into an organisation that might not pay them a fair price for their milk. 
It has been quite a process and this legislation is an evolution of that domestic supply situation. I have to say that it is a bit late in coming to the House. The National Government for all its rhetoric in saying that it supports farmers has mucked around—to use a rural term—on this issue. Mr Ardern knows that. The Minister David Carter came in and could not quite grasp the problem. The previous Minister Jim Anderton had done a lot of good work. He had got to the point and recommended that an auction system be put in place. It should have been in place for this season but the Minister came in and hesitated and procrastinated. He did a U-turn as the National Government has done in a whole lot of areas and decided that we could not get it in place this season so we will bring in a new pricing structure. 
Hon David Parker 
: For a year and a half. 
Hon DAMIEN O’CONNOR 
: Well a year and a half is a short time for the National Government to procrastinate believe me. The Government will do about two or three U-turns in that time. Anyway thankfully we have got back to a sensible situation here which is why the select committee and all its members have supported the bill going forward. 
In passing this legislation I think it is important in a second reading speech to mention the likelihood—in fact the strong possibility—that we will have other legislation in this House dealing with Fonterra in the near future. Fonterra has just announced that it is about to start discussions with farmers on a capital restructure. A lot of farmers are not quite sure what this means. They have been told and there are many people running around the country saying that Fonterra needs more money to grow the business. That is true. I have to say that Fonterra and the New Zealand Dairy Board have done very well so far. I do not think there is an industry that has grown so steadily so sustainably and so profitably as the dairy industry has. Do members know how they have done it? Through caution retained earnings smart investments and not allowing its debt to get out of control. 
I have to say that the new management of Fonterra has allowed debt to slip out beyond the level that is comfortable. They should have retained the earnings in the year that they paid record money to the farmers. They should have retained a billion dollars of that money on their balance sheet and they would not have had an issue. But they chose not to and I do not think they deserved a bonus that year. But that is by the by. We have moved on. We are likely to have legislation in this House supporting a capital restructure if the farmers deem that this is necessary. 
Before this House agrees to any change we should look very carefully at Fonterra its success and its importance for New Zealand and in the international tradable market for dairy products. There has recently been a report from Desiree Reid who is a Nuffield Scholar. She is one of the smartest brightest leaders in the dairy industry. She is currently in Ireland and Europe looking at the dairy industry and she has reported back. She has visited Irish farmers who are working hard to replicate our low-cost pasture-based advantage. They are using our crossbred genetics and all of our wisdom to try to catch up. But they have said that Fonterra is the jewel in the crown of our dairy industry. 
There are proposals to recapitalise Fonterra because there are claims that it does not have enough money to grow. I am not quite so sure about that. The question is why people would be doing it if that is not the case. Well there may be some people who think for philosophical reasons through blind ideology or whatever that we need just to get some outside capital into Fonterra. I say to this House and I think the dairy industry should say to this House: “Don’t mess with us. Don’t mess with success.” If Mark Weldon John Key or others think that there is a need to bring in outside capital outside control and ultimately outside ownership into Fonterra then they should be warned. I think farmers will dig in for a big fight. 
I cannot help but mention a situation that the Prime Minister finds himself in. He is a big investor in a company called Dairy Investment Fund which is a private equity investor focused on deregulating the dairy industry to quote the  
New Zealand Herald  
of 2008. I am not sure what the Prime Minister’s current situation is. But before we do anything else to the dairy industry before we pass any further legislation—in fact even before this bill is passed—he should disclose in this House whether he is still a major investor in the Dairy Investment Fund. There are vultures waiting out there to take control whether they be Chinese whether they be New Zealanders or whether they be any other people around the world. If control of Fonterra is taken from the dairy farmers in this country we will see that control slip offshore. 
Fonterra is our multinational company. It is the most successful industry in this country. It is very important that this legislation that we are passing dealing with only 5 percent of the milk is sound—I believe it is and that is why Labour supports it—and that any other legislation we bring to this House is sound also.