Shearer David: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
Shearer David: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
[Volume:658;Page:7584] 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I rise to speak in support of the Dairy Industry Restructuring (Raw Milk Pricing Methods) Amendment Bill. As my colleague Damien O’Conner mentioned this bill came about through a review of the dairy industry. That review was conducted under a Labour Government and it identified three key issues that needed to be addressed. Firstly the current wholesale price of the regulated pricing formula systematically underpriced regulated raw milk to independent processors. Secondly there was no system for managing the excess demand for regulated raw milk by independent processors. Thirdly there was unmanaged transition risk associated with the ending of the statutory obligation on Fonterra to supply regulated raw milk. There needed to be an addressing of these issues. 
One of the ways in which that was proposed was to introduce an auction process for raw milk in the 2010-2011 season. Unfortunately although this review was done in 2008 the bill has not entered the House until the end of 2009. That means that the auction process will not be ready for the season as envisaged. The interim solution being proposed in this bill is to amend the regulated price to the Fonterra farm-gate milk price and add a price adjustment of 10c a kilogram to the price of milksolids. That seems a reasonable suggestion given that the auction process will not be in place in time. That will remove the irritant to farmers of underpricing milk to independent milk processors in the time it takes for the auction price to come into being. The principle underlying this bill is also to ensure that adequate competition is maintained without favouring one group over another. I think it is very important that we acknowledge that independent processors can take New Zealand milk and turn it into high-value products. This part of the scheme should be maintained and we need to acknowledge the value that these independent processors are able to bring. 
Applying science and innovation to our primary product is where New Zealand’s real benefit comes from. Of course we can continue to ship large amounts of raw milksolids abroad as we do and it is the major component of our exports and our income in our dairy industry. Over time I suggest that countries like Chile and China may well be big markets for our products but they will also be major producers of such products. Indeed we are sending our scientists over to Chile and China to help them develop their dairy industries. They will become not only consumers but also competitive producers of dairy products. Our ability to stay ahead is therefore very much dependent on how we use our brains our science and our innovation in the production of our dairy industry. As Rutherford once stated: “We haven’t got the money so we’ve got to think!”. He was dead right. We are rich in natural resources but we need to apply our brains to keep us ahead. That will enable us to remain economically viable. 
The importance of small processing companies is in contrast to Fonterra itself. Although I do not disagree with my colleague across the House Shane Ardern about Fonterra and the need to ensure that it maintains its market place we have to note that Fonterra receives 92 percent of New Zealand’s milk. However its investment to add value has not been particularly successful in Fonterra’s case. Last year its bumper price was a $7.90 per kilogram payout but only 31c of that was value-added. Fonterra is a great exporter of ingredients that go overseas. These then get turned into products that are sold at higher value by other companies abroad. That needs to change. As the  
New Zealand Herald 
 noted: “The need to lift Fonterra’s products beyond bulk cheese blocks and milk powder has never been more urgent. Last year the company cited opportunities in medical nutrition cheese slices for McDonald’s worldwide pizza toppings in 30 countries and pharmaceutical grade protein among others. Eight years ago when Fonterra was founded these were the sort of sophisticated products envisaged. The medical and pharmaceutical uses chimed well with the Labour Government’s “knowledge wave” of its early days. Now they are close to the heart of a new Prime Minister with ambitions to lift the country’s economy to a higher level of value.” These were the promises that we wanted from Fonterra but we are not yet getting there. 
I argue that our ability to add real value to New Zealand is also our ability to ask Fonterra to consider not just what it gets over the farm gate—and this comes back to the question of its shareholders—but also what real value it can add to the New Zealand economy. It is for that reason that I find the Government’s decision to ditch the Fast Forward scheme so reprehensible. Putting up as the Labour Government did $700 million for research and development funding seemed a pretty good deal and that was going to be matched with private funding that would enable certainty in innovation and in the abilities of our scientists to know where they were going. It would have built partnerships between the private sector and public sector—as we have seen in the case of Fonterra so desperately needed—and encouraged innovation. Unfortunately it was ditched. In its place the Government’s Primary Growth Partnership is a rather cheap and nasty alternative. It offers only a fraction of the advantages that the Fast Forward scheme did. It shows that this Government knows the price of everything but the value of nothing. 
Interestingly enough just to add to that general theme we recently had a situation where the chief executive officer of AgResearch in Hamilton Andrew West was bemoaning that he had to send his scientists to places like Chile to help those countries with their farming industries in order to generate the 9 percent return that this Government insists on. I have absolutely no problems with a Crown research institute being able to wash its own face to in a sense not cost the taxpayer money. Under the previous Labour Government although we set the figure at 9 percent anything that was produced by the Crown research institutes was turned back and put into research not as this Government is doing put into the deep dark recesses of the consolidated account. I believe that this Government does not understand that every $1 invested in a Crown research institute could lead to $10 or $100 return by our New Zealand farmers. Instead it is focusing on the 9 percent return that the Crown research institutes are producing—a rather short-sighted policy. 
In conclusion we support this bill in its first reading. We believe that it addresses some of the anomalies and the difficulties that are apparent and were highlighted in the review that the Labour Government conducted in 2008 and for that reason we support this bill in its first reading. Thank you.