O'Connor DamienDAIRY INDUSTRY RESTRUCTURING AMENDMENT BILL (NO 2)First ReadingHon DAMIEN O'CONNOR (Minister of Agriculture): I move That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a first time.The bill deals with an important and urgent matter—to prevent the expiry of certain key provisions in the Dairy Industry Restructuring Act 2001 or the DIRA as I'll refer to it from expiring in the South Island on 31 May 2018. The Government recognises that the dairy industry is important to the economy and to the well-being of New Zealanders. The dairy industry is New Zealand's largest export earner and it is essential that it performs well.It generated $14.6 billion in export revenue for the year ended June 2017. This is expected to increase to $16.8 billion for the year ending June 2018. The dairy industry is also a significant employer and contributor to regional economies. It employs over 50000 people—37000 on farms and over 14000 in processing and marketing.The DIRA was passed in 2001 to enable the formation of Fonterra. At that time Fonterra had a dominant market share—96 percent of the traded milk in this country. Given Fonterra's dominance the DIRA was put in place to ensure that the New Zealand dairy industry remained contestable and that Fonterra performed efficiently for the benefit of consumers and farmers. The DIRA provides disciplines on Fonterra to perform efficiently in the absence of strong competitive pressures. The DIRA contains automatic expiry provisions that were triggered in 2015 when dairy processors other than Fonterra collected more than 20 percent of milk solids in the South Island. At that point the DIRA required a review of the state of competition which was conducted by the Commerce Commission.The DIRA also required an active Government decision as to whether to allow the DIRA to expire in the South Island or to remain in place. Key provisions in the DIRA will no longer apply to the South Island by 31 May this year if the DIRA is not amended. Firstly open exit and open entry provisions: Fonterra must accept an application to become a shareholding supplier to Fonterra except in limited circumstances where the milk might be too expensive to collect. Fonterra must also allow any farmer choosing to supply another company for any reason to exit and take their invested capital. These open entry and exit provisions are a key element to ensure that Fonterra is both fair and efficient.Secondly in the Dairy Industry Restructuring Amendment Bill (No 2) this milk price monitoring regime—the Commerce Commission must each year review the calculation of Fonterra's farm-gate milk price for the dairy season that has just concluded. The commission must also review Fonterra's farm-gate milk price manual. Fonterra's manual sets out its methodology for calculating its farm-gate milk price for the season. The milk price monitoring regime is intended to promote greater transparency of Fonterra's farm-gate milk price setting processes.Thirdly there is the 20 percent rule by which Fonterra suppliers are permitted to sell 20 percent of their season's milk production to another processor. This provision primarily ensures that smaller specialist producers of dairy products such as cheese and yoghurt are assured of milk supply.In December last year I announced my intent to undertake a comprehensive review of the DIRA as a matter of priority and committed to consulting fully with the dairy sector on further policy decisions in this year 2018. I want to ensure that the regulatory sittings around the dairy industry support a high-performing innovative and sustainable sector that meets the Government's strategic objectives for the sector. Passing this bill under urgency will allow a major review of the DIRA to be conducted this year. The review will give the public and industry players the opportunity to give us their views in a substantive and meaningful way. Those submissions will guide the Government's considered and strategic approach to the changing needs of the dairy industry.Hon Nathan Guy: How long will it take?Hon DAMIEN O'CONNOR: I believe it is important to give industry certainty while this review is undertaken particularly for South Island dairy farmers and dairy processors who need to know what regulatory environment will apply to them in the coming dairy season when they make decisions on who to supply or who to buy their milk from. I therefore do not believe that allowing these key DIRA provisions to expire now in the South Island would be in the best interests of the farmers the dairy processors the consumers or the wider economy. That is why this bill needs to amend the existing DIRA legislation.In 2016 the Commerce Commission review looked closely at the DIRA regime and found that competition was not yet sufficient to warrant the removal of the DIRA provisions. The Government considers that the DIRA provisions should be retained pending further comprehensive review. For this reason I'm satisfied that it is appropriate to retain the existing provisions while the Government considers the DIRA and other strategic dairy industry issues during the upcoming review which we hope—for the member's question—will be conducted in 12 months. In short this bill prevents the DIRA from expiring so that the Government can undertake a comprehensive review of the DIRA legislation.I'll now turn to the key provisions in the bill—Hon Member: There's only one.Hon DAMIEN O'CONNOR: —as explained briefly by the Minister in the House. In technical terms—and I think at this point some may go to sleep—it repeals sections 147 to 150 of the DIRA which set out the triggers and process for expiry of the key DIRA provisions in either the North or South Island or both. Second point: it repeals provisions relating to further review of the DIRA given that I have already committed to a comprehensive review of the legislation. Thirdly it makes consequential changes to other sections in the DIRA. Fourthly it revokes the Order in Council that would otherwise effect expiry in the South Island on 31 May 2018—this year.The bill does not make any other changes to regulatory settings. In effect it just stops the countdown to expiry in the South Island so that the dairy industry can have certainty and so that the Government can undertake a considered review with full opportunity for consultation with and input from all interested parties. I therefore consider that this bill should be passed as quickly as possible to enable certainty for the dairy industry and for the Government and to conduct the DIRA review.I'd like to take the opportunity to acknowledge the coalition partners who we've worked with to ensure the smooth passage of this legislation. Can I acknowledge the Opposition parties—generally speaking dairy industry legislation has been non-partisan. There has been a unity of purpose and ultimately a unity in passing legislation through the House so I'm hoping that the National Party will see the wisdom to support this legislation through under urgency so that we can ensure that Fonterra and the dairy industry is stable while enabling us to have a comprehensive review that acknowledges the significant challenges facing not just Fonterra but all the other dairy companies in the country and in fact the farmers who participate in the dairy industry.This is a very important piece of legislation. We believe its passage through urgency will enable certainty to remain in the industry and open the door for a useful and worthwhile and necessary discussion around the dairy industry over the next 12 months. At this stage in one year's time we'll be back in here to make any necessary changes to legislation to improve the further and future opportunities of dairy farmers and their industry. Kia ora.