Ardern Shane: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
Ardern Shane: Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill — First Reading 
[Volume:658;Page:7582] 
SHANE ARDERN (National—Taranaki - King Country) 
: 
 I rise in support of the Dairy Industry (Restructuring Raw Milk Pricing Methods) Amendment Bill. But before I speak in accordance with the Standing Orders I need to declare that I am a supplying shareholder of Fonterra the largest company that this legislation affects. 
I will give a little history to the background of this bill as did the Hon Gerry Brownlee the Acting Minister of Agriculture in his opening comments. This regulation came about as a result of much concern about the merger of the New Zealand Dairy Board Kiwi Cooperative Dairies Ltd and the New Zealand Dairy Group which brought together one entity that was going to control at that time about 96 percent of all milk production in New Zealand. The Commerce Commission had major concerns about what would happen if small competitors in the industry tried to set up and Fonterra used its size to price milk in such a way that those competing interests would not get access to milk. That is basically the background to why the regulation was put in place in the first place. 
What does this legislation do? It requires Fonterra to make available 600 million litres of its milk—of the milk of the shareholders of Fonterra who now number about 10000 farmers up and down New Zealand—to its competitors the small companies that compete with it at the price that is regulated. That on the surface sounds pretty heavy-handed but the genesis of the idea was to allow for those small competing companies to get started. Over time small companies have started up—a number of them have been mentioned—and there are now a large number of small companies in New Zealand. Some of them that compete with Fonterra are not so small and they have been able to get access to prescribed litreages of that total of 600 million litres of raw milk. Also over time it has been discovered that the price the regulated framework prescribed was less than what Fonterra was having to pay its farmer-shareholders at the farm gate. So the proposal—the compromise if you like—that has been reached is a sound step forward. 
The farm-gate price plus 10c takes into account recognition of the fact that milk is not produced for 365 days a year in a uniform way; in fact production is very seasonal. If we look at grass growth graphs we can see that grass grows at a much higher rate in November than it does in July. In fact in Taranaki in September we were growing 100 kilograms of dry matter per hectare a day which is a record growth rate I understand for the area. Grass does not grow evenly therefore milk cannot be produced evenly. There are the so-called shoulders which are the periods in the season when milk production is less than it is at other times in the season. For that reason the processing side of the industry invests a lot of money in stainless steel—in plants separators cheese-processing facilities tankers and that type of stuff—to cater for peak milk. There is a lot more capital required for peak milk times than there is for the shoulder parts of the season or the lower producing times of the season. 
The 10c premium is in recognition of the fact that not all prices are even and not all production is even. I think it is a reasonable stab; I suspect it is still on the low side but I think it is a reasonable compromise. Fonterra is happy with that. Competing companies are grizzling about the fact that they have to pay a bit more but by and large to my understanding they are reasonably comfortable with it. It does reflect the investment that Fonterra has made in the substantial capital required there. 
There is a larger issue coming and the Acting Minister touched on it—that is when is a small competing start-up company no longer a small competing start-up company? Some of these companies have been operating now for some time; in fact some were operating before Fonterra was. So at what point should they no longer have access to milk that is arguably still subsidised by the large company Fonterra? The philosophical debate will go on for ever and members are well aware of it about whether one company in New Zealand should be the dominant force and what percentage of the industry should belong to other companies. That debate in my view has been totally debunked over the time that I have been in this Parliament in the sense that if we talk to any of the other primary industries or to any other export and manufacturing industries the one thing they all say to us is that having a dominant or large presence in the markets where we compete is the No. 1 driving factor to price back in New Zealand. Because of Fonterra’s single focus on international markets and the structure that has allowed that to happen we are very competitive internationally in the dairy industry—hence the growth in the dairy industry. 
I have listened recently to commentators talk about how Fonterra has been a poor performer but a 5.8 percent growth year on year since the company was formed makes it difficult for me to understand what they mean by that especially when I compare Fonterra with other companies such as Carter Holt Harvey for example or any type of company members want to mention in New Zealand that is dealing primarily in the export of products that have to be developed from raw commodities that have a perishable life. We can take any companies—we can go through all the rest of the primary industries—and we can name the lot but none of them competes with that level of growth. Those who suggest that Fonterra or the dairy industry should emulate the structures that some of those other companies employ need to look at what has actually been the end result of Fonterra and its single marketing structure which has allowed that company to export to 150 countries around the world and to have as I said those kinds of growth rates. 
This legislation about the restructuring of raw milk pricing methods is fundamental to that concept because if we decide that the company should be broken up that the industry should fragment or that we should have 15 20 40 or even 50 percent of whatever figure we pick of the total amount of milk produced in New Zealand go to companies other than Fonterra then we are actually suggesting that that single focus on international markets is not the endgame. That is the ultimate thing. Of course all of these debates come about when we start talking about the further capital required for developing markets such as China where there is huge opportunity with which New Zealand has a free-trade agreement and where the dairy industry has a strong presence and will continue to have a strong and growing presence. 
So there is a debate and there must be a balance in what will be the best in terms of how the industry can develop going forward where it will secure its capital and how many competing small companies there are in New Zealand. Surely it is healthy to have some small competing companies in New Zealand; I agree with that concept. Certainly some of the innovation that comes out of our small companies is healthy. But to suggest that Fonterra should be broken up or in some way fragmented or that its dominance in the market place is unhealthy is very much a bury-the-head-in-the sand approach that does not look at the history of the other organisations and companies primary producers or exporters that have adopted that approach. In fact all of the other industries that I am aware of are trying to emulate a more focused market structure internationally. Obviously there is a lot of debate about size in the meat industry and about how that industry and various other industries can achieve Fonterra’s kind of single-focus marketing. You know they are looking to Fonterra for leadership. 
I am happy to support this bill. I know it is a step forward. I look forward with some enthusiasm to the next round of debate. Certainly this is a good move for the Government and for New Zealand today. Thank you.