Carter John: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
Carter John: Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill — Second Reading 
[Volume:672;Page:18254] 
Hon JOHN CARTER (Minister of Civil Defence) 
 on behalf of the  
Minister of Agriculture 
: I move  
That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a second time 
. The bill had its first reading on 14 October 2010 after which it was referred to the Primary Production Committee for consideration. The committee received and considered 13 written submissions and heard eight oral submissions on the bill. 
The bill extends the market share thresholds for the expiry of the pro-competitive provisions in Part 2 Subpart 5 of the Dairy Industry Restructuring Act—the DIRA. The bill also provides a new provision for expiry once the new market share thresholds are met. Subpart 5 of the Dairy Industry Restructuring Act promotes dynamic efficiency of the New Zealand dairy industry by regulating the activities of the dominant market player Fonterra. It ensures that despite Fonterra’s dominant market position it operates in an environment that is contestable—that is one where it faces potential competitive pressure. This environment drives Fonterra and other dairy companies to improve their economic performance. 
Subpart 5 of the Dairy Industry Restructuring Act is however subject to sunset clauses because the regulatory intervention is necessary only until competitive pressure can be put on Fonterra by existing or potential competitors. The thresholds in the current sunset clauses could be reached by 31 May this year in the South Island. If that happens and no other action is taken the Dairy Industry Restructuring Act’s pro-competitive provisions would expire in the South Island. The Government considers that without the regulatory provisions contained in the Act there is currently unlikely to be enough competition to ensure the efficient operation of the New Zealand dairy market. 
The bill resets the market share thresholds for the expiry of Subpart 5 of the Dairy Industry Restructuring Act for the North Island and South Island to 20 percent of the milksolids being collected by independent processes in a season. This means that if Fonterra collects less than 80 percent in the North Island in a season then the pro-competitive provisions will no longer apply in the North Island and if Fonterra collects less than 80 percent in the South Island in a season then the pro-competitive provisions will no longer apply in the South Island. 
Under the existing market share thresholds in the Act milk collected from within the boundaries of the West Coast Regional Council is excluded from the South Island market share threshold. When the Act was introduced it was considered uneconomic for independent processors in the West Coast to purchase milk from farmers in other parts of the South Island and transport the milk across the Southern Alps. The consultation process for this bill told us that independent processors can now economically collect milk outside the boundaries of the West Coast and transport it back to their plants. We are also aware of the discussions between processors and farmers from the West Coast and Canterbury about the transfer of milk supply between those regions. These points demonstrate that there is a single market for raw milk in the South Island. For that reason as recommended by the select committee this bill provides that milk collected in the West Coast will be included in the new market share threshold for the South Island. 
Another key feature is that the bill requires the Minister to request a report on the state of competition in New Zealand when the new market share thresholds are met in either the North Island or the South Island. This report will provide the opportunity for the Government of the day to consider whether when the new market share thresholds are met the dairy industry is indeed ready to move to a regulatory regime consisting only of a generic competition law rather than the additional industry-specific Dairy Industry Restructuring Act. Some submitters are concerned that there is no time limit for when that report must be completed. Having no deadline could result in uncertainty for the dairy industry while it awaits the report’s recommendations. For that reason the select committee recommended that the bill include a time limit of 12 months within which the report must be provided to the Minister. 
Some submitters were also concerned that the nature of the industry could change considerably even without the threshold being met. As per the select committee’s recommendation the bill therefore provides that the Minister must request the report either when one of the market share thresholds is met or in June 2015 whichever is the earlier. If the report is requested in 2015 without the market share thresholds having been met it would not automatically trigger the expiry of the pro-competitive measures as the automatic expiry process is tied to the market share thresholds being met. However the Government could choose on the basis of the report’s recommendations to take actions such as promoting legislation to bring about the expiry of the pro-competitive measures. 
This bill also introduces a requirement that all processors keep a record of the total amount of milksolids they collect in a season. They must provide this information to the Minister if requested. This requirement is to ensure that the Minister can access the information necessary to monitor the market share thresholds for the expiry of the pro-competitive measures. This bill ensures the continuation of the pro-competitive provisions of the Dairy Industry Restructuring Act until the new market share thresholds are met. 
There is currently a significant amount of attention on the dairy industry. Fonterra is proposing a capital restructure. The Ministry of Agriculture and Forestry has commenced a review of the Dairy Industry Restructuring (Raw Milk) Regulations and the Commerce Commission is considering whether an investigation into the price we pay for milk is warranted. With all this going on it is important that the Dairy Industry Restructuring Act remains in place and provides a stable reference point for any work being done. 
Due to the likelihood of the existing market share thresholds being hit within the next season it is not possible to wait to make these changes to the Act so that they coincide with one of the other pieces of work. It is imperative that the Act is still in effect in order to promote competition and provide a mechanism by which to regulate the behaviour of the major participants in the New Zealand dairy markets. 
The current concerns about the level of competition in our dairy markets strengthen the argument that in the absence of regulatory provisions contained in Subpart 5 of the Act there is unlikely to be sufficient competition in the dairy industry to ensure the efficient operation of the New Zealand dairy markets. 
I thank the members of the Primary Production Committee for their consideration of the bill and for the report tabled on 22 February 2010. I commend this bill to the House.