Whaitiri MekaDAIRY INDUSTRY RESTRUCTURING (FONTERRA CAPITAL RESTRUCTURING) AMENDMENT BILLSecond ReadingHon MEKA WHAITIRI (Associate Minister of Agriculture) on behalf of the Minister of Agriculture: I present a legislative statement on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill.ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon MEKA WHAITIRI: I move That the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill be now read a second time. The bill was first read on 27 September and it has been the subject of an accelerated process. I want to thank the Primary Production Committee for dealing with the bill so quickly while also maintaining the careful scrutiny and informed consideration that legislation requires.The bill as introduced sought to strike a balance between enabling Fonterra to pursue its capital restructuring with certainty while managing risks to the wider dairy sector that might arise from that restructuring. The capital structure that Fonterra and its farmer shareholders have chosen is designed to ensure that Fonterra has a sustainable milk supply in the future. This is important for our largest dairy cooperative's future commercial success for farmers' incomes and for New Zealand's economy. But the bill also recognises the interests of the wider dairy industry which collectively remains a mainstay of New Zealand's prosperity. That is why the bill strengthens existing safeguards in the Dairy Industry Restructuring Act (DIRA) to ensure that the market for farmers' milk remains contestable. By that I mean that all dairy processors can compete fairly for farmers' milk and farmers can freely choose which processor they want to sell their milk to.The Government also wants to make sure that the interests of farmers are well served. That means having a strong innovative efficient dairy sector that can meet the challenges and growing complexities of international trading conditions climate change efficient and sustainable land use and consumer demands. I am pleased to see that the select committee has reported the bill back without major changes to the key enabling provisions and safeguards in the bill. I am also pleased that the committee has heard and taken account of the views of the stakeholders and has proposed a number of amendments that will improve clarity and ensure equity and effectiveness of the DIRA regime in the future.The bill enables Fonterra's move to a new capital structure by addressing a legal risk that Fonterra might have otherwise faced. It also addresses risk inherent in Fonterra's new capital structure by strengthening some of the existing regulatory settings in the DIRA. The bill introduces two broad categories of safeguard: (1) measures to support liquidity in the trade of Fonterra shares in its restricted farmer-only market and improve transparency in relation to Fonterra's performance and (2) measures to improve the transparency and robustness of the governance operation and Commerce Commission oversight of Fonterra's base milk price-setting arrangements. I'll do a short recap of both.Firstly on liquidity Fonterra's new capital structure will mean that there is a restricted farmers-only market for shares. A restricted market could constrain share trading. Farmers wanting to exit Fonterra may find it more difficult to sell in a timely manner or may have to do so at an undue financial loss. This would mean costs to individual farmers but it would also mean potential loss to the economy by limiting the ability of farmers to switch milk supply to other potentially more efficient or innovative dairy processors or to alternative potentially more sustainable land use. So the bill introduced measures to support liquidity in the trade of Fonterra shares by requiring a market marker to be designated under NZX rules and requiring Fonterra to make independent financial markets research and analysis of its performance accessible to current and future farmers and unit holders. The market marker will offset low trading volumes of Fonterra shares.The bill ensures that the market maker will be operating in a way that would make it accountable under NZX rules providing for independent financial markets expert and regulatory oversight. The requirement on Fonterra to make independent financial markets research and analysis available will fill an important information gap that might otherwise result from the capital restructuring. A restricted farmers-only share market will likely attract limited attention from expert market analysis. The bill aims to ensure that current and future farmers and unit holders continue to be well informed about Fonterra's performance. This in turn will help guide future investment decisions.The bill as reported back also increases the independence and transparency of the base milk price-setting regime. As I have noted before Fonterra's size in the market for farmers milk means that it essentially sets the raw milk price for the whole dairy sector. The bill strengthens Fonterra's base milk price governance by increasing the number of ministerial point nominees on Fonterra's milk price panel from one to two; requiring the chair of Fonterra's milk price panel to be fully independent of Fonterra and appointed by Fonterra with the approval of the Minister; and thirdly requiring Fonterra to change on at least a six-yearly basis the person or persons charged with calculating the base milk price for Fonterra's milk price panel. These measures collectively aim to ensure the governance and operation of key elements of Fonterra's base milk price setting arrangements preserve an appropriate distance from Fonterra's management and the board.In addition the bill strengthens the transparency and scrutiny of Fonterra's milk price manual and base milk price calculation. The bill gives the Commerce Commission the power to direct Fonterra if necessary on matters arising from the Commission's review of the manual and base milk price calculation and requires Fonterra to disclose non-sensitive information requested by or provided to the Commerce Commission in the course of its reviews of the manual and base milk price calculation.I am aware that some stakeholders question whether this new power would impose undue costs and process. I anticipate the Commerce Commission will rarely need to resort to actually issuing directions to Fonterra. This new power is primarily intended to incentivise Fonterra to have regard voluntarily to the Commerce Commission's review findings and recommendations arising from its existing review functions. With the exception of some upfront preparatory funding extra costs will only be incurred in the rare cases that a direction actually proceeds. The bill also takes a measured approach to the exercise of the Commerce Commission's new directions power. The direction can only be given after due consultation with Fonterra and consideration of evidence and directions must be clearly aligned with the statutory purpose of the DIRA base milk price regime.The requirement on Fonterra to disclose non-selective information is also an important factor in the mix of safeguards introduced by the bill. As I've already noted Fonterra by default sets the price of raw milk for the dairy sector and this means that the dairy sector as a whole has to have confidence in the assumptions and inputs that make up the base milk price calculation. The disclosure requirements will help to support that confidence.The select committee has reported the bill back with some amendments to provisions relating to the base milk price-setting regime and these amendments have regard to matters raised in submissions and will help to avoid potential unintended consequences and I will run briefly through them. The bill as reported back removes the right of persons other than the Commerce Commission to bring injunction proceedings directly against Fonterra for potential breach of the DIRA base milk price provision. It also removes any right to bring damages claims for breaches of the base milk price provisions. These amendments ensure that the Commerce Commission has the necessary enforcement tools to effectively carry out its new functions under the bill but avoids potential unintended effects of third parties taking direct enforcement action against Fonterra in relation to its compliance with the DIRA base milk price provision.The bill as a whole also widens the grounds on which Fonterra could withhold information under the new information disclosure requirements introduced by the bill. The amendments suggested by the Primary Production Committee support the original policy intent of the bill is introduced and as I have already said improve both its clarity and effectiveness. I commend this bill to the House.