Prosser Richard: Dairy Industry Restructuring Amendment Bill — In Committee 
Text is incorporated into the Bound Volume 
Prosser Richard: Dairy Industry Restructuring Amendment Bill — In Committee 
[Sitting date: 17 July 2012. Volume:681;Page:3559. Text is incorporated into the Bound Volume.] 
RICHARD PROSSER (NZ First) 
: 
 I want to reassure the Minister in the chair David Carter that my earlier comments were not an attack upon his integrity. I found out about the Supplementary Order Paper at around about the same hour this morning as he did but I was immediately struck by the simple brilliance of it as an elegant solution to possibly ameliorating some of the worst effects of what is still in essence a bad bill. We do not support Supplementary Order Paper 81 proposed by the member from the Maori Party Te Ururoa Flavell for different reasons. 
Continuing on with the theme from earlier the most important feature of the Fonterra cooperative is its size and its strength and its virtual monopoly position. Because of that virtual monopoly the size and strength that Fonterra has grown to has been of enormous benefit to the New Zealand dairy industry and to New Zealand as a whole and we very much want as a party to see that continue. New Zealand First would very much like to see Parliament recognise that and to not pass this bill the Dairy Industry Restructuring Amendment Bill because of that. All that we can see coming from the Trading Among Farmers scheme as it currently sits and from the milk price setting regulation scheme—as is also proposed in this bill—is the potential demutualisation of Fonterra and at the very least the siphoning-off of a proportion of the dividend stream from Fonterra to overseas interests. 
Where we also see a cap on the size of the fund being a benefit is that it will limit the tradability of shares. We see that there is another danger inherent in the trading of unit securities particularly in the dry shares because the value of those unit securities will directly affect the value of all other shares in the cooperative and that will have a direct flow-on effect on the ability of farmers to enter and exit the co-op. Whether they have the right to enter and exit freely or not is not really the issue; it is the cost of entering that will be the issue. If the focus of a unit trading scheme—which it can only be—is to push up the price of the units and to maximise the price of the dividends then because Fonterra’s sole source of income is milk the only place that that additional income can come from is if the farm-gate milk price goes down. If this happens in conjunction with what is ostensibly going to be an independent milk price panel then the perfect storm will be that dividend prices rise along with share values and that the milk price comes down. That will mean that immediately a redemption risk will be created where one does not exist at the moment. Share values will rise some farmers will see those increased values and take the opportunity to realise a gain and quit the cooperative and new farmers coming in will see that the share price is unattainably high and they will choose to take their milk to alternative processors. 
Where we see the danger in that is that the alternative processors are for the most part not cooperative. They are private companies that have no restrictions on foreign shareholding. If the Trading Among Farmers scheme goes ahead as it is proposed—we do not believe as I reiterated that it is fully understood by farmers who voted in favour of it—the immediate repercussion will be that the share price increases. Indeed in order for Trading Among Farmers to attract outside investors in the way that it must in order to meet its 8 percent minimum the only thing that can happen is that share values rise because outside investors will offer more for those shares than what they are currently worth. If they were not going to offer more farmers would not have any incentive to sell them. 
I do not intend to keep the Committee very much longer other than to reiterate that we believe that Supplementary Order Paper 85 as proposed by the Hon Damien O’Connor is a good one. It will give some indication of the mood of the Parliament to the farmers of New Zealand: that Parliament does have a concern that without a cap on the trading scheme there is a real risk—a very real risk—that Fonterra will be demutualised that that dividend stream will flow offshore and that New Zealand will lose its 100 percent control and ownership of its dairy industry. 
We remain opposed to the bill. We still support the Supplementary Order Paper by the Hon Damien O’Connor. In closing I would just like to add that if Fonterra is allowed to be demutualised by this or any other means it will be to the great detriment of New Zealand as a whole.