Cunliffe David: Dairy Industry Restructuring Amendment Bill — First Reading 
Cunliffe David: Dairy Industry Restructuring Amendment Bill — First Reading 
[Advance Copy - Subject to minor change before inclusion in Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It is a pleasure to take a call on the Dairy Industry Restructuring Amendment Bill and to recognise that it is probably one of the most important economic bills to come before this Parliament in some time. If this Parliament fails to exercise the due diligence and good judgment that is tasked of us on this matter the effects will be felt for generations. 
I am a former diplomat who has represented the New Zealand dairy industry overseas in many markets and on many occasions and I was also a management consultant tasked with advising on the formation of Fonterra from Kiwi Cooperative Dairies and the New Zealand Dairy Group. I have long taken an interest in this most crucial industry for the New Zealand economy and am proud to have been part of the Government that set up Fonterra in the first place. 
Crucial to New Zealand Fonterra is; roughly one dollar in every five of New Zealand’s export earnings comes from this industry and through this cooperative. Many of our trade negotiations have been guided by the interests of this industry arguably the one and only industry where New Zealand has world leadership and global scale. If we lose progressively or dilute over time our sovereign control over the one industry where we are a world beater and a world leader literally we will undermine the future solvency of our very country and the future sovereignty of our very country—that is how important this is. Thirty percent of the global dairy trade comes from or through Fonterra—one bucket of milk in three traded anywhere in the world. No wonder the US dairy industry when I was a diplomat in Washington was terrified of Fonterra—it was the New Zealand Dairy Board then—because it was the big guy on the block and there are not many industries where we can say that. Fifteen thousand people work for Fonterra it is a major employer in this country and we want to see it grow. 
We want to see it strong we want to see it play well in international markets but the issue is whether this bill provides the enduring legislative framework that will lead to that outcome and here are the reasons why. After much consideration Labour has determined that on the current drafting it does not. I can assure you that this has been much debated in our caucus and we have not come lightly to the position of opposing this bill. It has been much consulted on around the country and previously all matters around this industry have been a bipartisan consensus between National and Labour. 
This is a big departure for us. Here is why we have come to that point. The first issue is the lack of detail in the bill and the uncertainty around crucial governance issues that should not be left to chance or the accumulation of financial market pressures. If the Government were in a position where it could guarantee crucial issues of the sovereignty of farmer control we may well have a different opinion and we are open to being satisfied on some of these points through the select committee process. We are concerned that the bill does not enjoy the support of the Fonterra Shareholders’ Council nor the increasing number of farmer shareholders. And the reason for that is simple. They were told early on in the Trading Among Farmers consultation process that farmer ownership and control would be 100 percent guaranteed but it is not. I will go through the reasons in more detail but it is crucially around the sale of units that give ownership of the income stream from the milk production to anybody in the world: New York hedge funds Chinese State-owned enterprises New Zealand share market interests institutional banks—you name it they are powerful pressures and they will only accumulate and this bill opens the door. We need to be extremely careful about the fine print and farmers themselves have not been shown the fine print and in increasing numbers—and the Speaker in the Chair is a Southlander himself and a fine one—they are asking why not. They are asking why not. 
The sale of units as I say is not limited to farmers. It is a different class from wet shares and dry shares. The counterargument has been raised by members opposite that OK the voting rights stay with the share they do not attach to the units. That is true. But hello money talks; big money talks loudly and the money goes with the unit. There is a fundamental conflict of interest it seems to us that is set up by that division. The owners of the units will want the profit to be taken downstream where it can attach to their interests. The farmer shareholders will want the profit repatriated to the farm gate. They are headed in different directions they have different interests and the bill and the commentary are not clear as to how that will be arbitrated. 
The situation is inherently unstable. Take for example Kerry Group in Ireland. It opened the door to a very small proportion of non-farmer shareholdings through A and B class shares not dissimilar to this arrangement—not exactly the same but not dissimilar. And what happened? Effectively corporate control was lost well before the 50 percent threshold. Actually it was lost at around 20 to 25 percent. This bill has a cap of around 20 to 25 percent but crucially that cap is in the constitution of the cooperative; it is not in the law. Parliament is giving a blank cheque to future management under future pressure from unknown foreign institutional investors and we will have no comeback if we pass this bill in this form with a blank cheque to Wall Street. As a bottom line to earn Labour’s support—and I again stress that on a matter of this fundamental national importance bipartisan or multipartisan support around this House is fundamentally the right thing to do—we should argue this out until the majority of us are satisfied. If that cap could be put into law and if the detail were clearer we would be somewhere closer to it. 
And this is not an academic question. I have heard today that next year’s payout forecasts are likely to start with a five—that is not $7 per kilogram milksolid but around $5 something and that will put a lot of pressure on some heavily indebted farm balance sheets. Add to that the fact that the tax structure of farming enterprise may change a few years from now and there may be incentives for farmers to farm more for profit and less for capital gain and that would be a good thing in my view all things being equal. But that will add more pressure on farmers with stretched balance sheets to sell the rights to the downstream production through the units. And this bill provides for the constitution that allows up to 200 percent of the individual farm production to be leveraged out. Well what a hedge fund’s dream that little one is: over-leveraging the farmers’ commitment to 200 percent if I am well advised on that matter. 
We want assurance that this Government will not allow the future flotation of this cooperative on the New Zealand stock market or any other stock market. That would be a fundamental damage to the cooperative nature of this enterprise—New Zealand’s most important single business. Sometimes people might laugh about cooperatives but where would we be if Fonterra was not a cooperative? And the answer is that it would already be foreign-owned for goodness’ sake. It would have been taken over by Kraft or somebody else years ago. The reason it is New Zealand’s No. 1 export earner—not America’s or Denmark’s or China’s or somebody else’s—is because it is a farmer-owned cooperative and anything that dilutes that or puts it at risk cannot be waved through by this Parliament on a wing and a prayer that some future manager will stand by the spirit of this legislation even though they are not bound by the letter. I want my grandchildren to know what it is like to be in a country that is a world-first in at least one industry. And this is it; there is no other. Do not let it go. Do not put it at risk. And if you are not sure and if it is not clear on the details stop think do not pass go do not sell 200 percent.