Williamson Maurice: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — First Reading 
Williamson Maurice: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — First Reading 
[Volume:667;Page:14504] 
Hon MAURICE WILLIAMSON (Minister for Building and Construction) 
 on behalf of the  
Minister of Agriculture 
: I move  
That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be considered by the Primary Production Committee that the committee present its final report on or before 28 February 2011 and that the committee have authority to meet at any time while the House is sitting except during questions for oral answer and during an evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
Dairy exports contributed 27 percent of the value of total merchandise exports for the year ended March 2010 and it is estimated that the dairy production and processing industries contribute approximately 2.5 percent to GDP. Given the industry size it is important to ensure its long-term growth and dynamic efficiency. The Dairy Industry Restructuring Act 2001 promotes dynamic efficiency of the New Zealand dairy industry by regulating the activities of the dominant market player Fonterra. The pro-competition provisions ensure that despite its dominant market position Fonterra operates in an environment that is contestable—that is one where it faces potential competitive pressures. This environment drives Fonterra and the wider dairy industry to improve economic performance. However the Dairy Industry Restructuring Act contains sunset clauses because this regulatory intervention is necessary only until there is sufficient competitive pressure on Fonterra to ensure efficient market outcomes without that additional regulation. The current sunset clause could be met as early as April next year in the South Island. 
A competition analysis of the New Zealand dairy industry found that without the regulatory provisions contained in the Dairy Industry Restructuring Act there is unlikely to be sufficient competition to ensure the efficient operation of the New Zealand dairy markets at the time the sunset clauses are met. Consequently in July this year Cabinet agreed on a proposal that effectively extends the pro-competition provisions of the Dairy Industry Restructuring Act. This bill therefore amends the sunset clauses in the Dairy Industry Restructuring Act by resetting the market share thresholds that have to be met in order for the pro-competition provisions to expire. 
The new market share thresholds in the North Island are that at least 20 percent of milk solids must be collected by independent processors in a season and in the South Island at least 20 percent of milk solids outside the boundaries of the West Coast Regional Council must be collected by independent processors in a season. Before allowing the pro-competition provisions to expire it is crucial to examine the extent of competitive pressure that would be applied on Fonterra and the potential impact on the long-term growth and dynamic efficiency of the dairy industry in the absence of these provisions. 
This bill therefore puts in a place a new process so that when the market share threshold is reached in either the North Island or the South Island it triggers a comprehensive competitive review of the New Zealand dairy markets. At that time the Minister of Agriculture in consultation with the Minister of Commerce would devise and publish terms of reference for that review which would be undertaken either by the Commerce Commission or by officials depending on the complexity depth of analysis and information requirements. The review would consider such things as the relative market share the number scale and location of existing competitors the barriers to entry for potential new competitors and the expected impact and application of the Commerce Act. 
On receipt of the report the Minister of Agriculture would be required to notify in the  
Gazette 
 within 90 days his or her response including any intended action. The pro-competition provisions would then lapse irrespective of that response at the end of the following season unless legislative change was made in the meantime. If the Government considered that the state of competition in the dairy industry was insufficient at the time of the review there would be time to promote a new bill in Parliament that would see the Dairy Industry Restructuring Act in full or in part extended further. In effect this creates a window between the thresholds being met and the Dairy Industry Restructuring Act expiring in order to give enough time for the Government of the day to review an amended Dairy Industry Restructuring Act if necessary to meet policy objectives at the time. 
In order for the Government to know when the thresholds have been met it has to have access to information about the collection of milk in the New Zealand dairy markets. The bill therefore includes a requirement that dairy processors keep records relating to milk collection. Processors already collect this information so this obligation does not impose any additional compliance costs on processors; it simply provides a regulatory backstop to make sure that the Minister will always have access to the necessary information. The current rate of independent processor entry and expansion indicates that it could potentially be 5 to 10 years until either one of the new thresholds would be reached and the review of the state of competition in the dairy industry undertaken. At some point the transition should be made to a dairy industry that does not need industry-specific competition law and can rely on general competition law only. However the current market structure means that additional regulation is still required to ensure the contestability of milk supply and the dynamic efficiency of New Zealand dairy markets. I commend this bill to the House.