Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill

on behalf of the Minister of Agriculture: I present a legislative statement on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill.

ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill be now read a second time. The bill was first read on 27 September and it has been the subject of an accelerated process. I want to thank the Primary Production Committee for dealing with the bill so quickly while also maintaining the careful scrutiny and informed consideration that legislation requires.

The bill as introduced sought to strike a balance between enabling Fonterra to pursue its capital restructuring with certainty while managing risks to the wider dairy sector that might arise from that restructuring. The capital structure that Fonterra and its farmer shareholders have chosen is designed to ensure that Fonterra has a sustainable milk supply in the future. This is important for our largest dairy cooperative’s future commercial success, for farmers’ incomes, and for New Zealand’s economy. But the bill also recognises the interests of the wider dairy industry, which collectively remains a mainstay of New Zealand’s prosperity. That is why the bill strengthens existing safeguards in the Dairy Industry Restructuring Act (DIRA) to ensure that the market for farmers’ milk remains contestable. By that I mean that all dairy processors can compete fairly for farmers’ milk and farmers can freely choose which processor they want to sell their milk to.

The Government also wants to make sure that the interests of farmers are well served. That means having a strong, innovative, efficient dairy sector that can meet the challenges and growing complexities of international trading conditions, climate change, efficient and sustainable land use, and consumer demands. I am pleased to see that the select committee has reported the bill back without major changes to the key enabling provisions and safeguards in the bill. I am also pleased that the committee has heard and taken account of the views of the stakeholders and has proposed a number of amendments that will improve clarity and ensure equity and effectiveness of the DIRA regime in the future.

The bill enables Fonterra’s move to a new capital structure by addressing a legal risk that Fonterra might have otherwise faced. It also addresses risk inherent in Fonterra’s new capital structure by strengthening some of the existing regulatory settings in the DIRA. The bill introduces two broad categories of safeguard: (1) measures to support liquidity in the trade of Fonterra shares in its restricted farmer-only market and improve transparency in relation to Fonterra’s performance, and (2) measures to improve the transparency and robustness of the governance operation and Commerce Commission oversight of Fonterra’s base milk price-setting arrangements. I’ll do a short recap of both.

Firstly, on liquidity, Fonterra’s new capital structure will mean that there is a restricted farmers-only market for shares. A restricted market could constrain share trading. Farmers wanting to exit Fonterra may find it more difficult to sell in a timely manner or may have to do so at an undue financial loss. This would mean costs to individual farmers, but it would also mean potential loss to the economy by limiting the ability of farmers to switch milk supply to other potentially more efficient or innovative dairy processors, or to alternative, potentially more sustainable land use. So the bill introduced measures to support liquidity in the trade of Fonterra shares by requiring a market marker to be designated under NZX rules and requiring Fonterra to make independent financial markets research and analysis of its performance accessible to current and future farmers and unit holders. The market marker will offset low trading volumes of Fonterra shares.

The bill ensures that the market maker will be operating in a way that would make it accountable under NZX rules, providing for independent financial markets expert and regulatory oversight. The requirement on Fonterra to make independent financial markets research and analysis available will fill an important information gap that might otherwise result from the capital restructuring. A restricted farmers-only share market will likely attract limited attention from expert market analysis. The bill aims to ensure that current and future farmers and unit holders continue to be well informed about Fonterra’s performance. This, in turn, will help guide future investment decisions.

The bill as reported back also increases the independence and transparency of the base milk price-setting regime. As I have noted before, Fonterra’s size in the market for farmers milk means that it essentially sets the raw milk price for the whole dairy sector. The bill strengthens Fonterra’s base milk price governance by increasing the number of ministerial point nominees on Fonterra’s milk price panel from one to two; requiring the chair of Fonterra’s milk price panel to be fully independent of Fonterra and appointed by Fonterra with the approval of the Minister; and, thirdly, requiring Fonterra to change on at least a six-yearly basis the person or persons charged with calculating the base milk price for Fonterra’s milk price panel. These measures collectively aim to ensure the governance and operation of key elements of Fonterra’s base milk price setting arrangements preserve an appropriate distance from Fonterra’s management and the board.

In addition, the bill strengthens the transparency and scrutiny of Fonterra’s milk price manual and base milk price calculation. The bill gives the Commerce Commission the power to direct Fonterra, if necessary, on matters arising from the Commission’s review of the manual and base milk price calculation and requires Fonterra to disclose non-sensitive information requested by or provided to the Commerce Commission in the course of its reviews of the manual and base milk price calculation.

I am aware that some stakeholders question whether this new power would impose undue costs and process. I anticipate the Commerce Commission will rarely need to resort to actually issuing directions to Fonterra. This new power is primarily intended to incentivise Fonterra to have regard voluntarily to the Commerce Commission’s review findings and recommendations arising from its existing review functions. With the exception of some upfront preparatory funding, extra costs will only be incurred in the rare cases that a direction actually proceeds. The bill also takes a measured approach to the exercise of the Commerce Commission’s new directions power. The direction can only be given after due consultation with Fonterra and consideration of evidence and directions must be clearly aligned with the statutory purpose of the DIRA base milk price regime.

The requirement on Fonterra to disclose non-selective information is also an important factor in the mix of safeguards introduced by the bill. As I’ve already noted, Fonterra, by default, sets the price of raw milk for the dairy sector, and this means that the dairy sector as a whole has to have confidence in the assumptions and inputs that make up the base milk price calculation. The disclosure requirements will help to support that confidence.

The select committee has reported the bill back with some amendments to provisions relating to the base milk price-setting regime and these amendments have regard to matters raised in submissions and will help to avoid potential unintended consequences, and I will run briefly through them. The bill as reported back removes the right of persons other than the Commerce Commission to bring injunction proceedings directly against Fonterra for potential breach of the DIRA base milk price provision. It also removes any right to bring damages claims for breaches of the base milk price provisions. These amendments ensure that the Commerce Commission has the necessary enforcement tools to effectively carry out its new functions under the bill, but avoids potential unintended effects of third parties taking direct enforcement action against Fonterra in relation to its compliance with the DIRA base milk price provision.

The bill as a whole also widens the grounds on which Fonterra could withhold information under the new information disclosure requirements introduced by the bill. The amendments suggested by the Primary Production Committee support the original policy intent of the bill is introduced and, as I have already said, improve both its clarity and effectiveness. I commend this bill to the House.

Well, that was a little heavy going, I’d have to say—probably was for people listening over the television—but I will try and add some perspective to it. Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill—we’re here at the second reading. So I will say, from the outset, that the National Party will support this bill. We supported it—

💬 Anna Lorck: Thank you very much, Todd.

My pleasure. We supported it through the select committee process, but I have to admit that—as I sat through that process on behalf of the National Party, with my great colleagues Nicola Grigg and Tim van de Molen—this is really a solution trying to find a problem.

💬 Angela Roberts: Tell that to the Fonterra shareholders.

They say, “Tell that to the Fonterra shareholders.” So I will unpack that a little bit. The elements of the Fonterra request were saying, “Hey, look, we want the opportunity to manage our own capital structure. We’ve run an extensive process through our own shareholder base. We’ve agreed that we would like to make these changes that, essentially, decouple the unit fund from the shareholder fund. And we would like to be able to make a couple of amendments to make that happen.”

Now, to your point of interjection, had the Government simply said, “Yes, that’s fine. That makes a whole lot of sense. We’ll do that.”, we could have run with this; my speech would be shorter, and I would be saying, “Well done, Government. You’ve actually got the balance right.” But, no, as is often the case when it comes to issues relating to the dairy industry, and to Fonterra in particular, now we need to have this significant debate again around what additional powers we need to put in for the Commerce Commission, to assure ourselves that the milk price manual and the milk price itself is not in any way being distorted.

This has been at the core of the perspective that Minister O’Connor has brought to the dairy sector for 20 years. Right when Fonterra was established, back in 2002, he had a very strong view that, because it had significant, and it does have significant, market power, there wouldn’t be a regulation or a constraint or a rule that couldn’t be imagined to make it harder for them to be able to land on a milk price, in terms of their disclosure requirements—of their requirement to be able to show what they do and how they calculate it—directly to the Commerce Commission annually. And this has been the tension with a business that has this scale: what is the appropriate regulatory balance—or constraint, if you like—that needs to wrap around their organisation? Here we have a scenario where Fonterra says, “We’ve done the consulting. We want to make this change to our capital structure. We want the ability to do that.”, but, oh no, on direction from the Minister, the Ministry for Primary Industries has to come with a whole lot of additional obligations with respect to the milk price.

Just let’s have a look at some of those. Now we have an independent chair. We have two members appointed by the Minister, because apparently the previous model, where there was one appointed by the Minister, wasn’t independent enough; so we needed to have two more. The Commerce Commission, which reviews the milk price annually and has done for the last 10 years, not only the milk price but also the manual—for 10 years the Commerce Commission has pored over the processes that happen internally to make sure that the milk price is calculated in the appropriate way. And, over 10 years, there have been two changes, which have seen a change, in one year, of 1c and, in the other year, of 2c. So, as opposed to looking at this and going, “Actually, it sounds like we’ve got the appropriate regulatory scrutiny right here.”, the Government says, “No, we want more independence that has to sit in that milk price panel.” Of course, not surprisingly, Fonterra’s competitors say, well, that move to more independent directors isn’t enough; there should be a whole lot more than just the, effectively, three that there are at the moment.

So what else has this Government identified through this process? A huge obligation on Fonterra to report, to disclose its approach with respect to the calculations, and some of that, frankly, from our perspective as a committee, actually went too far. So, in the amendments that we as a committee have decided make sense—in the proposed new section 150JA(2), which focuses on non-sensitive information—we defined that to enable Fonterra to be able to withhold information that was commercially sensitive and to withhold information that was legally privileged and also protect the privacy of a natural person.

There are huge enforcement clauses around the powers of the Commerce Commission with respect to the milk price manual, the calculation of it, and the disclosure regime that sits around it, including a very onerous clause that proposed new section 150ZA, which would allow the Commerce Commission or any other person beyond the Commerce Commission to seek an injunction against, essentially, Fonterra for contravening Subpart 5 or 5A or any of the subsequent regulations. After testing the officials’ thinking on that, the officials came back and said, well, actually, that was not part of the policy intent, to grant third parties the right to take direct enforcement action against Fonterra or seek damages in relation to Subpart 5A of Part 2, which is, essentially, the milk price regime.

There was a section 150ZB that would extend existing liability for damages for contravening the milk price regime and its regulations made under section 115, and also to apply to contravening Subpart 5A, and we as a committee decided that it would not be appropriate for the Commerce Commission or a third party to seek damages for a breach in those provisions. So a new section 150ZB has been suggested.

We have made some changes with respect to pecuniary penalties, and I think, ultimately, we have got the balance in a reasonably adequate way. I mean, I know that there will be those who are Fonterra competitors who would—[Interruption]

Take a call. I’d love to hear your contribution!

💬 Anna Lorck: I am.

Oh good! I’m sure it will be phenomenal!

I am sure there are those who are listening who will say, “Well, you know, have you got the balance right for protecting the smaller players?” Well, look, those smaller players have come in over the last 10 years. Initially, the expectation, when these regulations were established, was that they would be focused on the domestic market. None of that has happened, of course. They have appropriately, I guess, commercially fought Fonterra for the supply, to then take them on in the market. And that’s the market working. So, when you look at those suppliers and the balance sheets of those suppliers, to the extent that you get visibility on it, and where they compete against Fonterra in the world, of course they’re going to say that any additional constraint and obligation and cost and compliance that can be put on their competitor they are going to welcome.

Understandably, of course, Fonterra pushed back pretty hard about that, and at the core of their frustration—which I have a fair amount of sympathy with—“We want to change a capital structure. We go to do that. Yet again, no; we have a list as long as your arm of additional obligations and costs that we have to wrap around our milk price manual and calculation.” Bearing in mind that this is the same milk price manual and calculation that has had 10 consecutive Commerce Commission reviews that have, essentially, found nothing. So you’ve got to wonder whether a lot of this is actually needed and is really just an exercise, as I said, of a solution looking for a problem, particularly on the milk price side of the equation.

But, hey, we will support it. It has been, as always, a robust but collegial select committee process, ably chaired by Jo Luxton. We all get the opportunity to hold a view and to test the thinking of both the various submitters and also the officials. So, whilst it was a truncated process, I think it has landed, as I say, in a reasonable place, and the National Party will support it in the second reading.

It is my pleasure to take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. Unlike some of the members who have stood already this evening to speak, I find this a rather invigorating topic.

We know that it’s been 20 years since this first came in, and the market has changed significantly since then. We’ve got the development of competition in processing. Fonterra has just under 80 percent of the market share compared to when we started on this journey. So even though we have smaller players, it is Fonterra that effectively determines the farm-gate milk price for the entire industry. That is why we need to make sure that we have got the increased transparency and robust governance, and that the independence of price setting is as robust and clear possible, to ensure that we sustain the competition that is going to continue to drive our dairy industry to be world leading.

As usual, when you want to be sure about what you’re doing is right, you go to select committee, and you ask the experts. Of course, that’s always the workers, the farmers themselves. We had a great submission from the Dairy Workers Union. They actually want all processors to succeed. They support regular review and reform of dairy so that Fonterra can continue to meet the current and future challenges. They want to make sure we have a just transition.

We heard from some young and new-to-the-industry farmers who are really excited about the prospect of the reduced barriers to joining Fonterra and becoming a part of the cooperative. Trish Rankin, one of our great environmental leaders in Taranaki, talked about the fact that by having a little bit more capital freed up, she’ll be able to continue their programme: 1,200 riparian plants this season, extensive pest control, and huge improvements that they’ve got planned for their land that they’re more likely to be able to do if they’ve got some capital freed up.

We heard from a few farmers who are excited about the prospects. We know how important dairy is. This bill is about supporting Fonterra, farmers, workers, and, in fact, their processing competitors to secure a just transition and to continue to develop a dairy industry that is fit for a better world. This is why I commend this bill to the House.

Thank you, Madam Speaker. That was brief but enthusiastic. So, look, here we are on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill second reading. I think it’s quite interesting to reflect first and foremost, if I can, on some of the contributions made through the select committee process. We had a variety of different submitters and we saw some quire strong views at one end, in terms of Fonterra’s position that the proposals being put forward by the Government were, in a number of regards, a significant overreach, and then we had, at the other end, a number of competitors’ views that the impositions or the conditions being put in place—Fonterra would call them impositions—were insufficient and actually needed to go further. So, of course, that then creates the challenge for the Primary Production Committee to try and bring that together and find a workable solution within that.

Now, as I said in the first reading, the proposal put forward by the Government at that stage was actually somewhat different to what had been proposed by Fonterra. Fonterra noted that in their submission as well—that we had seen a bit of overreach. And this Government is never one to miss the opportunity to put its sticky fingers all over something that doesn’t need additional Government control. Yet this was a prime candidate for them, and so they said, “Right, we’ll bring in an independent chair and we’ll put in an additional person on the milk price panel, and, of course, we’ll give the Commerce Commission directive powers to require Fonterra to enact the change proposed by the Commerce Commission, even though it may be that Fonterra and the milk price panel retains the expertise more so than the Commerce Commission.”

But, that aside, we went through the select committee process and we heard the different views on the appropriateness or not of that, and indeed whether those needed to all be done in conjunction or whether one or the other could affect a similar outcome to what had been intended by the Government when drafting this legislation. I think, for me, the key highlight is if we’re giving the Commerce Commission the power to direct Fonterra to make changes—obviously off the back of their view that the process has not been followed appropriately in terms of setting that milk price or some aspect of the process that they have reviewed was found insufficient—then surely that is a reasonable backstop without the need for therefore having, as well as that, both an independent chair and an additional person on the milk price panel, given that the majority, as proposed under the legislation, still falls in favour of Fonterra and that milk price panel anyway.

Ultimately, we landed at the position that those proposals would continue to remain in place, but I am relieved that we did manage to see some change through; particularly, the risk of direct legal action that Mr Muller referred to as well—clause 27, I believe it was—that enabled the Commerce Commission, or any other person, to take legal action against Fonterra. The risk there being that we could end up with an industry bound up with numerous legal challenges, additional costs, ultimately farmers bearing the brunt of that, and there being some risk around whether that was done, potentially, for commercial gain around the sensitivity of information that might have to be released through that process. So I think it was an appropriate step to take that back out of the legislation because it certainly wasn’t the original intent to enable that to occur.

The other one that was, I think, an important consideration for me was around the additional liabilities that were being potentially placed on the members of the milk price panel—the director’s liability, as it were, around them therefore being more liable for their own personal penalties than they had been previously. So, again, a carve-out there enabling them to have a reasonable reliance on information or, again, anything that was beyond their control, and both of those scenarios for them to be exempt from prosecution themselves as well. That aligns with standard clauses in the Companies Act for directors of other companies, such as that they should have the ability to rely on information that they believe has been provided to them in a manner appropriate with the duties of the person providing it and at a level sufficient for them to be able to make decisions, etc., and so, therefore, that being a reasonable defence against liability. So, on that basis, I think it’s appropriate that we’ve landed where we have.

Now, there was one concern raised by a few submitters that it would be more difficult for Fonterra to compete, given that the overall milk pool is not expected to grow significantly and, indeed, may potentially shrink—that by requiring farmers to share up fully, as has previously been the case, it would make them uncompetitive. And so this part of the proposal that Fonterra put forward was allowing them to share up to only the one-third level rather than the full shareholding. Whilst I have some support for that, at the same time I would note that, actually, the structure that they operate under is quite different and I don’t think it’s reasonable to say that you would be comparing apples with apples in the scenario where open country, for example, as a privately owned company, brings on board a dairy farmer, a supplier, who supplies milk but does not have a shareholding in the company and therefore does not have a say in how that company is run. That’s quite different than Fonterra as a share—or coming in as a supplier, you are a shareholder, you buy shares in the company, you therefore are a part-owner of the company and have a say in how that company runs. So I don’t think it’s reasonable to say that they should be able to compete at an exact level playing field when actually the structures of the entities are quite different. That was one area that I think came through showing that there wasn’t quite a good understanding, or a clear understanding, necessarily, amongst submitters around the different entity structures that can prevail in the industry and the different rights and responsibilities that go alongside that for a potential supplier, or for the dairy farmer, in whichever case it may be.

But, broadly, I think we’ve landed in a reasonable space where, I think, no submitter will be entirely happy with us. So it’s probably a reasonable balance on the face of it, and we’ll now go through the remaining stages to see whether we can get this through, or whether there needs to be any further amendment at the committee of the whole House stage. But, on this basis, we do support it at this stage and look forward to the continued progression of this bill. Thank you.

Thank you, Madam Speaker. I rise to take a short call on this legislation coming through the House, and really to repeat what everyone has said around it striking the right balance. But what’s important with this bill is that we are increasing transparency and improving the robust governance and independence of price-setting.

I want to talk just briefly on the independence that we’re seeing, through the number of ministerial nominees on Fonterra’s milk price panel from one to two; requiring the chair of Fonterra’s milk price panel to be fully independent of Fonterra and appointed by Fonterra with the approval of the Minister; and requiring Fonterra to change, on at least a six-yearly basis, the person and persons charged with calculating the base milk price for Fonterra’s milk price panel. I think, on that, I can commend this second reading to the House. Thank you.

Madam Speaker, I rise on behalf of the Greens to take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill, or “DIRA”. DIRA’s such an unassuming, disarming name. It’s like DIRA is an old friend—“I’m going to pop up the road and have a cup of tea with old Dira. Me and Dira go way back.” The problems, however, that the Greens have with “old Dira” is that there are two areas of concern that still remain with us through the first reading and through the select committee process. Thank you to the select committee for doing that work but, for us, “old Dira” is still not up to the mark. Those two aspects are around emissions; implications and issues around entrenching monopolies. So, in layman’s terms—sorry about it, DIRA—there’s been a whole lot of promises made about dealing with submissions, and also we don’t like the way you’re hoarding all the cookies. So that’s the bit on entrenched monopolies.

The emissions implications, in summary: we still see that the legislation is likely to have a negative impact on emissions reduction efforts, making it more difficult to leave Fonterra and incentivising increased milk production, and will dis-incentivise sustainable land-use change and entrench intensive dairying. And, as a reminder for folks that are just tuning in tonight, climate impact policy assessment was not completed for the policy as it did not meet the Ministry for the Environment (MfE) requirements, which seems inadequate given we are in the middle of a climate crisis. MfE did note, however, preliminary views that the proposals would lead to increased emissions. The regulatory impact statement also noted that reduced shareholder requirements will free up farmer capital, which could be invested in sustainability and climate improvements. However, there will be no requirement for investments to be focused on sustainability; they could equally be targeted at increasing production.

I reflected on this as I went through a number of the submissions, and I just wanted to reflect on the combined submission of Forest & Bird, Greenpeace Aotearoa, the Environmental Defence Society, and Choose Clean Water. I want to thank them for submitting to the committee—for a well-thought-out submission—because it crystallised for me the need for the Government to really think across their legislative programme; to really think about it; to look at the connections which, for us, are still missing from this legislation. Does the right hand know what the left hand is doing? Does the left fully know what the right wing is doing in that corner? On one hand, we are saying that the climate crisis is our nuclear moment and, on the other hand, we are giving the nuclear codes to the agribusiness lobby—and in particular Fonterra.

The Environmental NGOs have said it better to me, and I will quote them from their submission: “We consider the decision to progress The Dairy Industry Restructuring … Bill”—old Dira—“fails to take in to account key environmental issues. It is inconsistent with important developments in wider public policy that are starting to address environmental issues that are national and international priorities and commitments. In this respect it feels like the Bill has been drafted in isolation from the significant public policy changes the government has adopted to address climate pollution and environmental degradation. These include:”—and they list them—“…The National Emissions Reduction Plan 2022 … The National Adaptation Plan 2022 … Te Mana o te Taiao – Aotearoa New Zealand Biodiversity Strategy and Implementation Plan [and] The National Policy Statement for Freshwater Management … and related regulations under the Resource Management Act.”

If I can just emphasise part of this by quoting from the emissions reduction plan, whose goal, amongst other things, is about reducing emissions: “Reducing [agricultural] emissions is needed to achieve our 2050 target, including the requirement to reduce biogenic methane emissions by 24-47 per cent by 2050. Reducing agricultural emissions will enhance Aotearoa New Zealand’s reputation as a low-emissions and trusted provider of agricultural products. This plan must work with other initiatives to improve productivity, sustainability, inclusivity in the primary sector in line with the Government’s Fit for a Better World – Accelerating our Economic Potential roadmap” and outlines that key action is to, and I quote that—double quote that, just for all the DIRA fans out there—a “transition to lower-emission land uses and systems.”

So it was interesting to hear the call for support for a just transition, and I wonder from my Labour colleagues how they see this is helping to do that—to help to move people from more intensive dairying practices into something that is more regenerative, because that is what the climate moment is calling for. In that submission, they also point to the evidence of environmental degradation—so actual evidence.

We consider that the effectiveness of the original 2001 DIRA has been eroded by successive amendments. It has not adequately managed the risk arising from Fonterra’s dominance in New Zealand dairy markets for some time. As a national membership organisation, Forest & Bird, in particular, see these risks materialising across the country. This is evident in parts of the degraded state of Aotearoa’s rivers and lakes, as well as our high level of ongoing climate pollution.

ASSISTANT SPEAKER (Hon Jacqui Dean): Order! Order! There’s two things, Teanau Tuiono. I’d appreciate the member not reading the speech; he’s been here for a couple of years now. Secondly, I am looking at the bill and listening very carefully to the member’s speech and I invite the member to address the issues that are in this bill. The member has had a few moments on other issues unrelated to this bill. So I’m asking him now to come back to the bill.

Thank you, Madam Speaker; I was just reflecting on some of the submissions that landed at the select committee. But I will move on.

Another one of the major concerns was around entrenching monopolies. The bill does provide new measures to support the dairy monopoly, including restricting Fonterra’s exposure to external ownership by delinking its unit fund and making it more difficult for other processors to compete with Fonterra, by reducing barriers to entry. This will have the effect of stifling innovation in the sector. This is because, as a monopoly provider, Fonterra has less incentive to innovate, and competitors face greater difficulty in entering the market.

I reflect on the submission put forward by Miraka, Open Country Dairy, Synlait Milk, and Westland Milk Products, who expressed similar concerns, in their own way, when they reflected on the history of the DIRA and concerns around Fonterra’s over and above anti-competitive impacts that the DIRA was supposed to guard against. Just a quote from their submission: “Once again the Government is shoring up the [continued] dominant position of Fonterra without adequately balancing that … rightful concerns of other parties”. So that bit about hoarding all the cookies in the cookie jar—well, what about everybody else that wants to participate in the market?

So, in conclusion, industrial dairy farming is one of the main sources of greenhouse gas emissions in Aotearoa, and therefore a leading cause of climate change. So if we’re going to these types of law, it needs to be comprehensive and cohesive across the legislative programme, and the Greens don’t see this. We will not be supporting this bill.

Thank you, Madam Speaker. Look, I just want to highlight the Labour member that made a contribution earlier, talking about $22 billion, $23 billion worth of industry and offered about a minute’s worth of submission, and I think that’s quite egregious really.

The bill brought about rigorous debate. I think we all reconciled that in the Primary Production Committee; we were all very collegial. We heard both sides of the equation of the debate from officials, from members, and from multiple submitters. There were about 30 submitters, all told. They were openly supportive of the bill, but, equally, they were opposed to it for notable reasons. The group expressly raised concerns on both sides of the equation, like the submitters that I’ve just mentioned. Half the submissions were in favour of the bill because they saw it as about industry certainty moving forward, and the others spoke to environmental concerns and degradation, and I think the Green member highlighted that. There were also other players in the milk processing industry, outside of Fonterra, that raised their concerns.

The various submissions acknowledged the challenges that the dairy processors face in this industry, especially Fonterra and the liquid milk or raw milk supply. All across the dairy industry productive sector it was noted that there was a shrinking milk reality and hence why this piece of legislation, as proposed, was so heavily supported by those in it.

The predicate of the bill speaks to accountability for the base milk price-setting governance and oversight and the capacity for public transparency, and I think that was where a lot of the concern lay, in the role of the Commerce Commission and what, ultimately, the Commerce Commission’s role would look like moving forward. In terms of oversight, submitters levelled many concerns as well as positive outcomes and the tensions between those realities; issues of heightened and poor environmental outcomes, which I have traversed and made mention of, and dairy intensification. Now, we’re trying to still reconcile that on this side of the House when we’ve got a contracted milk pool, and that was well canvassed by both sides of the submissions and in the debate. Equally, for those that submitted, was the appearance of the lacking of neutrality. Fonterra, we understand, is about 80 percent of the liquid milk supply, and there are other processors that felt that the neutrality had been eroded—Government officials and the oversight openly supporting Fonterra in a manner that seemed to strengthen Fonterra’s dominance. Now that was actually raised, and again we debated this issue in a very collegial way. It seemed to accentuate the lack of contestability in the rural milk market. Now, again, this is the House of debate, and we saw that noted in the submission process and they’ll have to bring that forward tonight.

Here is where ACT was concerned, and it was shared by some of the submitters: the liquidity of the reality of sharing down. I know that this is going to be quite concerning for some of the Fonterra shareholders that are shared up. We appreciate the reality of sharing in and how that structure had changed, but sharing out, especially with a potential loss of equity, was deeply concerning to some who submitted. Issues were raised about the open entry and open exit strategy; what it meant to actually leave the industry and potentially go through land use change or ultimately supply other processors. Was that reality being given consideration completely in this piece of legislation? The original 2001Dairy Industry Restructuring Act (DIRA) put that provision in place, and subsequent amendments have removed it, and there are concerns about its removal. As amended, the provisions of the open entry no longer require Fonterra to accept all milk. There’s certain regions in New Zealand that Fonterra is the only processor of that milk, so you can see how some people might be quite concerned by that reality.

It was noted that the Government confirmed in the original DIRA that the key regulatory tools—and I noticed the member out of the Green Party Teanau Tuiono mentioned it before—for managing Fonterra’s dominant risk, the open entry and exit provisions, have actually now been removed and that is, again, quite concerning. It was also noted that the Government—it was necessary to continue to regulate the activities of Fonterra to promote efficient operation of dairy markets in New Zealand, and, certainly, as the ACT Party, we are absolutely all for free markets.

The question I have, and I think it changes the dynamics, is all around the exit and entry provision in the new DIRA bill. Now, I understand why, and I’ve canvassed it before: it’s about creating liquidity, potentially, in the market for those that want to exit, and an environment for young investors coming into the industry. The issue will always be about those leaving Fonterra and going across to other processors, or going through land-use changes I’ve previously canvassed, which I think really, potentially, risks weakening the share value, and, by virtue, puts prescriptions on those potentially going through land-use change, and that needs to be reconciled in the committee stage.

ACT appreciates that Fonterra has put provisions in for a share buyback programme, and I think it was recently announced that it is commencing 30 June 2022. That was $50 million, and it was framed as the market share buyback, part of a wider $300 million announced last year to support liquidity in Fonterra’s shareholder market—we appreciate the reasons for this, but, again, we are concerned. This will allow the transition to the flexible shareholding capital structure, and this is, ultimately, where this stuff lands: creating an environment to give Fonterra and those that supply them, which is the lion’s share of all of this, operational certainty.

The ACT Party will support this DIRA bill with considerable reservations, and I think I’ve brought them to the House and discussed them tonight. For various reasons, there are other processors in the liquid milk or raw-milk sector that are concerned about the dominance of Fonterra and how this appears to put a continuum on that reality. We accept that 85 percent of Fonterra shareholder supporters agreed with this transition and the progress of this bill in the House, but I can certainly say that the ACT Party will look to be heavily engaged in the committee stage of this and see how we can further iron out those concerns and or kinks. Thank you very much, Madam Speaker.

Thank you, Madam Speaker, for the opportunity to take a call in support of the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill at its second reading. The bill gives effect to the Government’s response to Fonterra’s intended capital restructuring.

We heard from the previous speaker, Mark Cameron, that this is creating an environment to give Fonterra certainty and it does that with two features to improve the transparency and independence of the governance and operation of the milk price-setting arrangement. Firstly, it increases the number of ministerial nominees to Fonterra’s milk price panel from one to two and requires the chair of Fonterra’s milk price panel to be fully independent of Fonterra. Fonterra will also, first up, need the Minister’s approval of a candidate before it can appoint the chair.

The Government believes that it’s important for Fonterra to be able to make changes to respond to a changing environment and to be able to proceed with certainty. That is something that we’ve heard all along in these speeches; the importance of that. The benefits of a high-performing and efficient Fonterra will flow through to its nearly 10,000 farmer shareholders in our rural communities. This bill will play an important part in ongoing resilience and prosperity of rural New Zealand.

Now, I wasn’t part of the select committee but I did hear Mr Todd Muller, I think, refer to the chair, Jo Luxton, as an “able chair”, and I’ve heard words as a “superb chair”. She shepherded this bill through the select committee process: the 30 submissions and the 15 oral submissions that were heard. The select committee, from what I understand, unanimously recommended some of these minor changes to the bill, which will help to avoid unintended consequences. The Minister Meka Whaitiri spoke on those as well.

The bill’s key risk mitigation measures and improved transparency were developed following consultation with industry and they will support ongoing performance. I commend it to the House. Thank you, Madam Speaker.

Joseph Mooney, five minutes.

Oh, thank you very much, Madam Speaker. It’s a pleasure to rise and speak on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill (DIRA bill) this evening, on behalf of the National Party. This bill enabled the formation of Fonterra in 2001, and manages risks arising from Fonterra’s dominance on New Zealand dairy markets.

I heard a few words from the Green Party before, and I think I’ll just clear something up as I get into this. New Zealand dairy farmers have the world’s lowest carbon footprint at half the emissions of other international producers—half the emissions of other international producers. New Zealand has approximately 5 million people and about the same number of cows producing 21 billion litres of milk every year—the eighth-largest dairy producer in the world with 11,000 dairy farmers. Now Brazil, by way of contrast, has four times the number of dairy cows, over 20 million, but produces less than twice the amount of milk, 36 billion litres, with a huge 900,000 dairy farmers. So just to put it in context, with a significantly smaller, four times’ smaller herd, we produce an incredible 21 billion litres of milk with the most carbon efficient footprint in the planet because our dairy farmers are incredible. I just want to put that on the record.

I should just say dairy farming has carried this country through the pandemic, like our agriculture industry has done an incredible thing for this country. Dairy exports in the year to June 2022 reached a record high of $22.1 billion in export revenue and make up 3.1 percent of our GDP. New Zealand’s dairy industry is of significant national interest, and that is really important that we recognise that, and we recognise that these are the most efficient dairy farmers on the planet.

This bill regulates Fonterra’s activities to ensure efficient operation of a dairy market with contestable goods and services in the face of a forecasted static or declining milk production. I should make that clear, New Zealand milk production is flatlining and expected to fall. That needs to sink in—expected to fall. So that is not something many people, I think, who are attacking dairy farmers in New Zealand actually understand. So this capital restructure aims to ensure that Fonterra’s factories remain full of milk by making it easier and cheaper for those wanting to join the cooperative to buy shares in order to be able to supply milk. Fonterra collects just 80 percent of the country’s raw milk. When it was created under the enabling DIRA legislation 21 years ago, it controlled 96 percent. So it’s down from 96 percent to 80 percent.

Just to keep another factor in mind that’s probably quite important, New Zealand’s second biggest dairy producer, Open Country Dairy, has said that it had a 40 percent lift in demand for product from its Australian customers. That was just published yesterday: a 40 percent lift in demand from its Australian customers. The Australian milk pool is declining and limiting milk supply, and so New Zealand dairy exports to Australia in the first nine months of this year earned $8.6 billion, compared to $7.3 billion in the full financial year prior. So Australia’s milk production is falling, they need our milk, they’re getting it from New Zealand. This is actually really important, and combine that with our flatlining and expected to fall milk production in this country. So we’ve got a very different market ahead of us. This bill is aiming to try and do a little bit to support Fonterra and the milk market.

Fonterra’s farmer shareholders voted in support of the changes in December last year. The changes in this bill will see Fonterra adopt a more flexible shareholding structure, allowing farmers to hold fewer shares and widening the pool to include sharemilkers, contract milkers, and farm lessors as associated shareholders. Fonterra’s competitors don’t require farmers to purchase shares to supply milk, and Fonterra has had concerns that it will become a smaller, less efficient business that would continue to lose milk supply without this amendment, forcing factories to close and reduce farmer milk payout.

As a large-scale farmer-owned cooperative, Fonterra can invest in innovation and sustainability when capital is freed up. In the face of this forecast, a static or declining milk production, the amendment will enable it to better compete for farmers’ milk supply and efficiently use its existing processing infrastructure.

The bill supports the new capital structure intended to reduce long-term risks to the sector, increases the number of Ministerial nominees to Fonterra’s milk price panel from one to two, requires an independent chair, gives the Commerce Commission power to issue binding directions to Fonterra, supports liquidity and transparency in the share trade of Fonterra shares, and requires Fonterra to maintain and publish a dividend and retentions policy. With that, I support this bill.

This is an industry I know about from a different point of view. I was the lawyer for the Dairy Workers Union, and over that time I saw the contrast—this industry with others.

In this industry, people are paid really well. Farmers and the workers are both doing well in this industry, mostly because of the cooperative structure that was set up. So that structure is looking for a reboot. This is the reboot; this is the Government supporting the way that the industry reform to make sure that they can really have the capital that they need.

I welcome the introduction of the sharemilkers into those schemes because those are hard-working people I know would like to be involved in this way. I think that’s a really good part of it.

It’s also a balanced piece of legislation which allows for people to make sure that there is monitoring on the prices and there is this attempt to make sure that Ministers, etc. are involved in the pricing of milk.

So this, to me, seems a really good piece of legislation that will support an industry that Joseph Mooney is quite right to applaud for the contribution it’s made to New Zealand. Labour supports the farmers. I’m glad to see their support across the House. Labour supports the farmers and this is good proof of the understanding that we both share.

💬 Penny Simmonds: That’s not what the farmers think.

And rather than mock, perhaps it’s time to actually take note. This is how Labour supports the farmers. Thanks.

Thank you, Madam Speaker. Madam Speaker, thank you for the opportunity to take what will undoubtedly be a rather short contribution in support of this bill, the dairy industry restructuring amendment bill. Given it has somewhat been unceremoniously personified earlier on by the Green member, let me just reiterate that it’s the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. I would just want to acknowledge the Minister of Agriculture and the officials for the work that’s been done to date, and the Primary Production Committee, who scrutinised this bill, no doubt with great enthusiasm.

As has been said by several people today in this debate and is worth reiterating, I think the one point that we can take from this is that last year Fonterra—Fonterra’s farmer shareholders, at least—voted in favour of having a new capital structure, and a new capital structure that specifically would make it easier for farmers to become shareholders in Fonterra and therefore to continue supplying milk. Unsurprisingly, therefore, the Government also agrees that it is important for Fonterra to be able to do that and to be able to make those necessary changes to what is undoubtedly, inevitably, a changing environment.

As we’ve heard earlier, the committee received submissions—about 30, I believe, if I have my numbers correct. Most of those, however, were in the service of providing further clarity and they didn’t result in any kind of substantial changes to the bill itself. So this is a good bill. It’s a bill in support of Fonterra, which is a good thing, and therefore I commend this bill to the House.

Madam Speaker, I’ve heard two extraordinary things in the House this evening. One was the Greens’ tear-down of New Zealand’s largest and most successful company and the other was that Labour supports farmers. Ha, ha! I’m still laughing about that! But God loves a trier, as they say.

Look, all jokes aside, we’re actually here this evening on some quite important business. We’re here to amend the legislation that’s governing the biggest business that New Zealand has ever produced, and that’s the Fonterra Cooperative. It has, in its 20 years, gone on to become the sixth-largest producer of dairy product in the world, and it really is a New Zealand success story. So it really shouldn’t be taken lightly. And I know I shouldn’t be surprised, but I am still quite stunned at the Green Party’s apparent antagonism towards a dairy company that, at the end of the day, produces protein for hungry nations.

💬 Chris Bishop: Why are you shocked?

Well, Chris Bishop, I’m still new, I’m still easily shocked, and I’m still wet behind the ears.

Anyway, look, in acknowledging that the decision to restructure has been made by the farmer shareholders, the National Party is comfortable with the decision to reduce minimum shareholding and we do continue, and will continue, our support of the bill through the House as we did during the select committee process. And much has already been said of the collegial environment in which we on the Primary Production Committee work.

The proposed changes that we’ve supported, primarily, are to give Fonterra the opportunity to free up capital and for its shareholders to have that capital to invest in the future of their business, of their operations. We did hear a number of shareholders, first-time farmers, young couples—those kinds of examples of people who are really going to take advantage of having this extra cash, this extra capital, to be able to reinvest in their business. However, it’s at this juncture that it would be remiss of me, as the member of Parliament for Selwyn, to not make a few comments on behalf of the local suppliers in my electorate who supply to other companies. Because we’ve certainly heard concerns, particularly from the likes of Synlait and Westland, that they have about the implementation, eventually, of this amendment.

Now, to be clear, the last thing anyone here wants to see is any competition being squeezed out of the market. We in the National Party very proudly support capitalism, as I’ve said in this House before, we support competition, we want to see businesses growing and doing well. And we do, however, in Selwyn, have to acknowledge the fact that it is probably one of the very few areas in New Zealand where Fonterra doesn’t have a near complete monopoly on the milk trade. As has been acknowledged by a number of speakers this evening, there are risks in this amendment bill. And if those are not properly managed, these amendments will risk companies like Synlait and Westland in their ability to pay competitive prices to the likes of Selwyn-based farmers. We should also note that Fonterra’s competitors, like those I’ve mentioned and also Open Country Dairy, who came and presented at the select committee, don’t require their suppliers to purchase shares to provide milk. So therein lies quite a difference.

In its considerations, the select committee did really test the officials on ensuring that there is a robust system in place of independent oversight. And that’s the really critical part to all of this. I think there has to be independent oversight on that milk price panel, and the select committee noted that Fonterra made quite strident lobbying towards wishing to remain in a position of influence on that milk price panel. However, we as a committee have chosen the middle ground and we believe that the changes that have come back in our report back to the House should mitigate the worst of the risks of any possible monopolistic behaviour on behalf of Fonterra. Other changes that we did also introduce were that the chair of the milk price panel has to be fully independent of Fonterra and that the day-to-day administration of the base milk price calculation has to be provided by an external—and periodically replaced—party.

So, just to wrap up, there are risks to this bill. The National Party has been extremely cognisant of the fact that we do want to support competitors. By the same token, we do absolutely want to support New Zealand’s biggest company and our greater success story. And more specifically, might I say, we want to support the farmers and shareholders that provide milk to all kinds of dairy companies in New Zealand.

So with that, we look forward to the committee of the whole House. We will continue to support this bill and may I commend it to the House.

Thank you, Madam Speaker. It’s a real pleasure to take a call on this bill. Now, I’m not a member of the Primary Production Committee that heard the submissions on the bill, but, living in Southland, I’ve got a good understanding of the huge contribution the dairy makes to our local economy.

Just noting that earlier this year, Fonterra Edendale marked 140 years since the processing first started on their site, back in January 1882—so a huge contribution over time to the Southland economy. And so now, at Edendale Fonterra, there’s about 670 people involved with the site—that includes transport and processing. And it basically makes a huge contribution to the local economy. When you’re out and about there, they’ve got 80 tankers out on the road every day, and you see them when driving around Southland. And basically millions of bags of milk powder are produced each year. I think the contribution the dairy payout makes, not only to our local farming community but just through the knock-on effects to the community as a whole—so it’s incredibly important that we get this right.

So this bill—well, it’s quite technical. For me, reading through it, just a couple of high-level things stood out, and the first one is that Fonterra’s farmer shareholders voted in favour of moving to the new capital structure in December last year. What this bill does is that it enables that to occur. And also what it does is it lowers the capital costs for farmers who want to become shareholders in Fonterra. What that means is that the next generation of farmers can come in and supply milk, which also ensures further supply for Fonterra. But it’s also really important that we make sure that farmers can buy and sell their shares freely, because what that means is that if you get more innovative or efficient producers emerging, those suppliers can swap, and that encourages—or ensures—that Fonterra also has to innovate in that space. So this is a really important bill, and I’m very happy to commend it to the House.