Parker David: Dairy Industry Restructuring Amendment Bill — Third Reading 
Text is incorporated into the Bound Volume 
Parker David: Dairy Industry Restructuring Amendment Bill — Third Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3819. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 I did agree with some of the comments from John Banks but it did not escape me that he accused others of gratuitous abuse and then proceeded to do exactly that to every party in the Opposition. I do not think that reflected very well on the rest of your speech Mr Banks and it was unnecessary. I do agree with you that it is important that we have a competitive milk price—that the split in the total return that Fonterra co-op members have between milk and their profit from their shares in Fonterra is an appropriate split. 
I also agree with the Hon John Banks that it is a highly technical area. Members of the Labour Party as I am sure the members of the ACT Party and other parties have received submissions from some of the competitors who are wishing to purchase milk who have a view that the price-setting mechanism in the Dairy Industry Restructuring Amendment Bill is not right. I have to say that I was initially convinced somewhat by some of those assertions that the milk price was being set at too high a price being based on a theoretical model for the price of milk driven by a theoretical profitable business based on new investment that goes into primarily milk powder rather than some of the older assets relating to the production of cheese which are less profitable. 
I was eventually convinced by Fonterra and from submissions that the Primary Production Committee received and from officials advising the select committee that in fact the profitable parts of the Fonterra business and the profitable parts of competitors to Fonterra are generally driven these days by a milk price model that relates to milk powder and that therefore the fundamental building blocks of this price model that Fonterra is using which is based on a milk powder model is correct. So in respect of that part of the bill I have got to the point where I think it is appropriate. I think that there are proper concerns raised by the smaller competitors that they not pay too high a price for milk because obviously if they have to pay too high a price for milk—an uncompetitive price—they cannot operate. And I agree with Mr Banks that it is in those small operators that we do see innovative practice being developed including for niche markets and overseas and that that competition at that part of the market is important to the long-term health of the Fonterra Cooperative Group which is what we are trying to grapple with in this piece of legislation. 
But the part of the jigsaw that is for me wrong in respect of this legislation is the absence of a statutory cap in the legislation restricting the proportion of the co-op shares that can be put on this trading platform so that the farmer does not own the returns from those shares. Farmers would still get a price for the milk that they deliver but they do not get the share of profits from those shares that they put on this trading platform. We have had to endure the insults from Mr Banks who asserts that in the Opposition we have got no understanding of commerce. Mr Banks it was you who tripled council debt when you were last the mayor of— 
Mr SPEAKER 
: Order! The member does not use “you” like that— 
Hon DAVID PARKER 
: I accept your point. 
Mr SPEAKER 
: He is perfectly entitled to debate the issue but he must not— 
Hon DAVID PARKER 
: It was Mr Banks who tripled council debt when he was last mayor and we do not accept lessons in fiscal responsibility or economic management from Mr Banks. 
Trading Among Farmers is driven by the concern amongst Fonterra that its capital base could be at risk of people redeeming their shares in the co-op in a way that creates effectively a run on the finances of Fonterra. There are a number of points to be made about that. One is that the worst almost imaginable combination of events did occur a few years ago. We had the global financial crisis coinciding with a drought. Farmers were pressed on their balance sheets. They were further pressed by banks because those— 
Hon Member 
: Mr Banks? 
Hon DAVID PARKER 
: —not Mr Banks; by New Zealand banks—banks themselves were suffering liquidity constraints. They put the squeeze on a number of farmers to whom they had extended credit. So there were a number of farmers saying that they wanted to withdraw some of their capital tied up in Fonterra. In addition to that we had the prior period of boom time when Fonterra had not been making any retentions from its profits by way of retained earnings to improve Fonterra’s balance sheet. Despite that almost perfect storm to the detriment of Fonterra Fonterra did get through. So I think some of the concerns about redemption risk have been overstated. None the less there is a germ of truth there that Fonterra is appropriately trying to guard against. 
The Labour Party has been a long-term supporter of the structures under which the dairy industry in New Zealand has thrived. It was the Labour Party under Michael Joseph Savage that created the first form of the Dairy Board. It brought this collective strength of all of the farmers together and caused the development of this vertically integrated industry which ensures that an appropriate share of the total profit to be made from the farm right through to the retail consumer is captured for the benefit of the New Zealand farm and the New Zealand economy. 
It was the Labour Government under Helen Clark and Michael Cullen that then forced through legislation with the support of the National Party that overrode local competition concerns to the detriment of New Zealand’s consumers probably in respect of the New Zealand milk consumption market. We overrode the Commerce Act which would otherwise have stopped the merger of New Zealand Dairy Group and Kiwi Cooperative Dairies because of their dominance in the New Zealand milk market. 
Shane Ardern 
: But they had to divest it in 6 months. 
Hon DAVID PARKER 
: I beg your pardon? 
Shane Ardern 
: They had to divest of up to 50 percent of it in 6 months. 
Hon DAVID PARKER 
: There were conditions relating to divestment as Mr Ardern suggests. But this Parliament overrode New Zealand’s Commerce Act in order to bring Fonterra into being. We did that because we thought that there was a New Zealand interest that exceeded the domestic competition concerns. Since then under this vertically integrated model the interests of Fonterra and the farmers who own Fonterra and the country that benefits from Fonterra have improved as it has been a very successful model. The germ of that remains true: we want a vertically integrated industry. To the extent that you can have different holders of share capital in Fonterra who have different interests you set up a tension. I think everyone agrees that that tension is created by this legislation—that there will be some people who in the future are not farmers and who have a long-term interest in the vertical integration of that industry from farm gate through to retail in China or wherever those branded products are going to be sold in the future. There could be a tension between the interests of those long-term farmers and the interests of the New Zealand economy which coincide with the interests of those farmers and the interests of people who buy the profit stream from some of these shares through Trading Among Farmers. 
It is that point that we in this Parliament need to be very careful about because as Mr Banks and the Minister for Primary Industries have previously said this has become New Zealand’s most important export industry. A full quarter of New Zealand’s exports come from the dairy sector and just about all of them come from Fonterra. So we should be taking care that we do not kill the goose that lays the golden egg. It is for that reason that the Labour Party has said that there ought to be a statutory limit in this legislation as to the proportion of the total shares in Fonterra that can be traded and separated from the farmer who provides the milk. We have said that that limit should be 20 percent. Our reason for that was that there have been overseas examples relating to Kerry Group dairy in Ireland where at 20 percent the long-term seeds of destruction of the cooperative model have been sown. So we thought that 20 percent is probably an appropriate limit. 
Fonterra came back to us and it engaged with us very maturely with the expertise that you would expect from Fonterra and its professionalism and we thank it for that. It came back and it said: “Look 20 percent we cannot live with but 23 percent we can—23 percent is above where we intend to go.” and indeed it wants to have a limit in its own constitution to a similar effect of around 20 percent. I might have that percentage wrong but Fonterra wants a limit in its constitution. It was willing to agree to an amendment through this Parliament that had a statutory limit and said: “If you want to go beyond that you’ve actually got to think from the point of view of Parliament about whether you are sowing the seeds of destruction in the cooperative.” The National Party would not agree to the amendment therefore Labour is opposing this legislation because it is without the statutory protection of a statutory limit.