Anderton Jim: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
Anderton Jim: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — Second Reading In Committee Third Reading 
[Volume:661;Page:10121] 
Hon JIM ANDERTON (Leader—Progressive) 
: 
 Since 2001 the Minister of Agriculture has been able to require Fonterra to supply up to 5 percent of its milk supply to independent processors at a regulated price. This was brought about by the formation of Fonterra and the need to protect independent processors in competition with it. At the time Fonterra might have been inclined—and there were signs that it was—to overprice those supplies to independent suppliers. A regulated price was brought in to ensure that independent processors got milk supply and got it at a reasonable price. In fact the supply of milk to independent processors tended to be underpriced if anything and the cost to Fonterra and therefore to the dairy farmers who supplied it was somewhere between $5 million and $17 million a year depending on the farm-gate price that Fonterra paid at the time. 
In addition the value of an underpriced milk supply to some independent processors was further enhanced by their ability to take advantage of the flexibility to increase or decrease the quantity of raw milk that they purchased through the season which was a flexibility that Fonterra itself did not enjoy. It had to take all milk delivered to it whenever it was delivered and pay for it. Fonterra not to weep too much on its behalf had received a very significant benefit from the original merger which took place due to the Commerce Act being suspended by the then Labour-led Government. But it would be unfair if suppliers to Fonterra paid an unfair subsidy to the competitors of Fonterra which in the event proved to be the case. 
This Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides some balance and certainty to that situation. It permits regulations to be made that replace the current wholesale milk price formula with the Fonterra farm-gate price plus a seasonal margin of 10c per kilogram of milksolids from the 2010-11 dairy season onwards. It also allows for raw milk to be allocated through an auction process in the future. This will mean that a framework and a system will exist to manage excess demand for regulated raw milk by independent processors and therefore manage the transition risk associated with the approaching end to Fonterra’s statutory obligation to supply regulated raw milk which runs out very soon—thus there is some urgency about this bill. 
The previous Labour Government had intended that the auction should start in the 2009-10 season. The auction was to allow for excess demand to be priced rather than regulated through quantity of supply. The price mechanism would also have a component that would guarantee supply to small processors so all elements of the dairy industry were taken into account. For a variety of reasons this option ran out and the first auction will now take place in the 2010-11 dairy season. This change has created considerable uncertainty for the dairy industry and it is very desirable that that uncertainty is ended as quickly as possible so that informed investment decisions can be made for the 2010-11 season. 
The option that this bill supports will mean there is a fair and efficient price any excess demand is managed efficiently uncertainty in the industry is removed and there is a stepping stone provided to introduce an auction system. It will also mean there is no incentive for Fonterra to manipulate its wholesale price because to do so would mean that it would have to overpay all of its farmers—not just the 4 percent who are being supplied as independent processors but the other 96 percent of Fonterra’s suppliers. That is not economically credible or viable for Fonterra to do so any temptation it might have had to overprice will be dampened somewhat by the cost of any such action. I think that is rather a neat solution to what could have been a significant problem. 
Replacing the current regulated price formula—that is the wholesale price of milk—with the Fonterra farm-gate price plus 10c per kilogram of milksolids from 2010-11 requires amendments to the original Dairy Industry Restructuring Act. The Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill provides for those amendments. I support its second reading and its progress through the House. The dairy industry is our major export industry. It is among our most efficient industries. It is highly competitive on world markets. It has been innovative and it has expended a significant amount of New Zealand’s research and development budget to ensure its position as our No. 1 exporter. It well behoves the House to take this bill seriously and expedite it so that all of the measures I have mentioned in the words I have addressed to the House so far can take place in a timely manner.