Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill

I guess clause 4 is the substantive part of the technical side of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. Clause 4 inserts section 147, “Minister to certify that market share thresholds met”.

I go back to the basis of the Dairy Industry Restructuring Act and why it was set up. Fonterra being a dominant player, the regulations in the Act guaranteed supply to other independent processors, at an estimated quantum of about 5 percent of the total milk flow of Fonterra. As the industry has grown—and there has been fairly steady growth—there have been calls by independent processors for more milk, and those thresholds have been changed. Now up to 600 million litres are available to independents. At what point does Fonterra become less dominant? In terms of that question, there is a decision now that it should be once it reaches 80 percent of the total milk flow through dairy farmers.

One of the issues dealt with here is how that percentage should be calculated. One of the very proud, prosperous, and smart regions that stood out was the West Coast. It remained independent at the formation of Fonterra, and it was calculated that its milk should not necessarily be part of the South Island calculation for the dominance of Fonterra, because of the Alps and a number of things. It was deemed at that time that West Coast farmers, or Westland Milk Products, could not participate or compete with Fonterra for farmers or vice versa. It has now been decided, because of rail transport, because Westland Milk Products has decided to set up a plant in Canterbury, and because Fonterra is building a plant in Darfield and there is potential competition there—I do not think it is necessarily healthy competition, but that is another story—that the thresholds should be changed. If Fonterra reaches 80 percent of the total milk flow, including the West Coast milk in the South Island, then the Minister would be obliged to review the situation.

He has announced that he is doing that anyway. This is the particular technical point that is made effectively redundant by changing political considerations. I think the Minister should have announced that review prior to tabling this bill. None the less, we have gone forward. Labour supports the change in the threshold on the basis that it is more sensible, but we remind the Committee that this bill is something of an academic exercise because of the Minister’s review.

Clause 4 of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill effectively does three things. It extends the period before the sunset provisions will be met. That is, it lowers the threshold for that to happen. Under the 2001 Dairy Industry Restructuring Act that threshold was likely to have been met within about 12 months of the Minister starting to discuss this amendment, which was likely to come up either next season or the one after it in the South Island, and a year after that in the North Island.

The bill extends that period and lowers the threshold to about 80 percent of New Zealand’s total milk production going through Fonterra as opposed to what it was before, which was a formula based on litres and percentages rather than the 80 percent straight out. Also, the sunset provisions will not be triggered entirely unless both islands are triggered. That is another addition. Of course, the Minister has to certify that the market shareholding has met that level before anything happens. The Minister can reconsider it in the event of that threshold being met in one island much quicker than in the other, or suchlike. That is what clause 4 does—no more or less than that.

Clause 4 of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill really gets to the heart of what the bill is all about. It extends the period for which the new sunset provisions apply and sets the percentage of milksolids that must be reached in both islands for the Minister to give a certificate to allow those provisions to apply.

I wonder, given that the Minister must sign a certificate that states the market-share thresholds for the North Island, for the South Island, or for both islands have been met, whether the Minister in the chair, the Minister of Agriculture, is able to enlighten the Committee on any criteria that he might use in order to satisfy himself that he is in a position to sign the certificate that states that those market thresholds have, in fact, been met. Although members on this side of the Chamber support the new sunset provisions allowed for in this bill in order to ensure that there is competition in the market, we are concerned that they allow an ongoing subsidy for some players in the dairy market, and we do not want to see that subsidy going on and on for ever. So we need to be assured that the Minister will be applying the criteria appropriately. Perhaps he would like to take a call on that matter and just clarify some of the potential issues that may rise.

It is noteworthy that the Primary Production Committee chose to include the West Coast in the South Island market-share threshold. Of course, previously the West Coast was ring-fenced, but I understand that submitters—I was not on the select committee myself—

💬 Shane Ardern: The member would have made a good member of the select committee.

I thank the member very much. I appreciate that from the chairman of the select committee. My understanding is that submitters informed the committee that the availability of transport, particularly the improved rail options, meant that the West Coast no longer, in their opinion, needed to be ring-fenced in the way it had been previously. In fact, a number of Canterbury farmers regularly approach West Coast independent producers, offering to supply them. That meant that the South Island could be taken as one, which shows that this bill reflects changes that have happened over time. The situation has moved on a long way from the situation in 2001, when the original Dairy Industry Restructuring Act, which this bill is amending, came into force.

It is great to see that changes like that were able to be made. The bill will require the Minister to request a report on the state of competition in New Zealand when the market-share thresholds are met in either the North Island or the South Island. Again, it would be useful to know what the content of that report would need to be for the Minister to trigger the provisions in this bill. We recognise that having no deadline for the report to be completed could result in some uncertainty for the dairy industry whilst it awaits the reviews, the recommendations, and the Minister’s response. It would be great if the Minister could perhaps take a call on some of those issues.

One thing we hear time and time again from the farming community and from the dairy industry is that the more certainty they can get from legislation, the better it is for their businesses, the better it is for their production, and the easier it is for them to budget. In a lot of ways they almost do not mind what we do in Parliament as long as they are absolutely clear about not only the intention of a bill but how it will actually be applied. Given that the Minister has a lot of say in how this bill will be applied, it would be useful if the Minister could perhaps take a call.

Clause 4 of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill is the material part of the bill, and I want to concentrate on three particular areas. It is worth mentioning that this country produces 1.4 million tonnes of milksolids. When we look at new section 147, substituted by clause 4, we see that there is a change from kilograms, as far as the formula for the trigger goes, to a percentage. If members work out 20 percent of 1.4 million tonnes of milksolids, they will see that somebody would have to be taking in the region of 280,000 tonnes of milksolids before they triggered it. So there is a more pragmatic approach to the sunset provisions in this bill—if that makes sense.

Interestingly, the submitters from the West Coast really got the Primary Production Committee thinking. They were very straight-up and honest. They said that the opportunity was there and they would take advantage of it. That sits on our minds, and, no doubt, the Minister of Agriculture is very aware of it. As we speak there are plans to have a collection centre set up in Rolleston where milk can be collected and then taken on the railway line through the Ōtira tunnel, and so on. It is quite important and it is a forward movement that we have actually included the West Coast in the bill. It is quite pragmatic.

One thing that is quite curious is that the original bill did not clearly define what a dairy farm was, the thing we were actually talking about. So in substituted section 147(5) we defined what a dairy farm is: “a farm in New Zealand that produces milk from dairy cows as a business or part of a business.” That bit of work was needed to clarify it.

An enormous amount of thought and work has gone into section 147 to ensure we have very robust and consistent transition sunset provisions, and, on that basis, I think clause 4 really does address the matter adequately.

In the same vein as the previous speaker, Colin King, I say that clause 4 of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill is really the guts of the bill. It is about having one market in the South Island. This bill includes the West Coast Regional Council as part of the South Island threshold for the market share. As has been said before, we have 1.4 million tonnes of milksolids and a large amount of milk to deal with. Clearly, with better transport across the Alps, the inclusion of the West Coast is now very appropriate. I am very pleased that the submitters to the Primary Production Committee were very happy we included this particular clause. I guess the opportunity is now given to the Minister of the day to provide or get that conclusive evidence that the threshold has been reached, and then the competition involvement prevails.

This particular part of the bill also clearly defines “dairy farm” and “milksolids”. In the past we used to use the term “milk fat”, but there was a change a number of years ago to sell the milk products on the basis of “milksolids” rather than just “milk fat”. I think that was a very good extension because “milksolids” includes the protein and the fats. It is fantastic. As I said, this is the guts of the bill and we are quite happy to support it.

It is a pleasure to rise and speak in support of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. Before I start talking about the substantive provisions in new sections 147 to 149, I say in response to comments made by Shane Ardern about the lack of empathy and interest in the dairy industry on this side of the Chamber that those comments could not be further from the truth. Both Jacinda Ardern and I took real umbrage at those comments. We are both rural girls. We both grew up in the important dairy farming industry area of the Waikato, and we would certainly like to put our rural credentials on the table. Jacinda, as is well known, is from that important place Morrinsville, and I grew up in a place called Ōhaupō, which is a very important dairy farming area.

As I said, Labour supports this bill and its intention, which is to extend the period of time for which Fonterra must provide fixed-price dairy solids to other dairy processors in order to foster competition in the domestic industry. I am sure that we see across the Committee the desire to have a competitive and healthy domestic dairy processing market, so that consumers have low prices and good choice when it comes to dairy products. That matter, of course, is subject at the moment to much scrutiny, because consumers currently do not have access to high-quality products at affordable prices. It has become an item of major concern for New Zealanders, especially as we live in a country producing dairy products. It is one of our main exports.

Getting on to new sections 147 to 149, which are the main substantive provisions of the bill, the three new sections together extend the application of subpart 5 of Part 2 of the existing Dairy Industry Restructuring Act by resetting the market-share thresholds at 20 percent for both islands, as others have commented. Once those targets are met it triggers the sunset clause, which is the provision that obliges Fonterra to supply milk to independent processors. At that point the Minister must sign a certificate, which is published in the Gazette and notifies that the market-share threshold has been met.

New section 148 institutes a new process for expiry, whereby the reaching of either of the new market-share thresholds will trigger a comprehensive competition review of the New Zealand dairy markets, enabling the Government of the day to make informed policy decisions relating to deregulation, including further legislative amendments if required. That provision is really important. On this side of the Chamber we are very much in favour of evidence-based lawmaking and policy-making, so we are pleased that this provision would trigger a comprehensive competition review—a very necessary thing.

That provision will also require the Minister to request that report, as I have said. I was not on the Primary Production Committee, but as I understand it the select committee made a recommendation on that matter, because there was no time limit on it and it could have resulted in uncertainty for the dairy industry while it waited for the review recommendations. I think that matter has been dealt with. Certainly the Minister, once a decision has been made after that comprehensive review, will have to signal the Government’s policy direction within 90 days of receiving the report. Again, that provision provides some certainty for the industry, which is important.

Going back to the point I was making earlier, it is of considerable concern to members on this side of the Chamber that the price of milk and other dairy products has skyrocketed under National, and this bill will do little to change that. I thought a quote from the chief executive of Manaia Health was quite telling. In February of this year Chris Farrelly said that the cost of cereal and milk means “55,000 children go to school every day without having breakfast.” In respect of this bill, a decision was made in the end to look at the pricing of dairy products. But the timing means that this bill is going through prior to the outcome of that review process being known. It seems to members on this side of the Chamber that it would have been logical for that review to inform this bill, and perhaps even for us to make some relevant changes as a consequence of the review.

I will take a second call on clause 4, which is the substantive part of the Dairy Industry Restructuring (New Sunset Provisions) Bill. I refer to two aspects, and people who are listening to this debate will probably be a bit confused as to why we are going round in circles a bit. It is because there are so many contradictions in this bill. There are so many significant precedents and issues relating to the next set of dairy industry reforms on possible recapitalisation.

The first aspect is the new definition of “dairy farm”, which was referred to by the chairman of the Primary Production Committee. It is a really important definition. Although it is in a little subsection of new section 147 in clause 4, it is absolutely crucial. The questions of who owns a dairy farm, who then is entitled to shares in Fonterra, and where the milk goes are all absolutely vital components of any change in the dairy industry. The unique aspect about dairying is that it is the biggest industry in the country, and it is the only industry substantively fully owned by New Zealanders. The fact that all of the others are owned, for the most part, by foreigners is a disgrace. The dairy industry remains in New Zealand’s hands, so the definition of “dairy farm”, and thereby “dairy farmer”, will be absolutely essential. Mr Ardern, I know, understands the significance of this issue. We must take note of the definition that is made here, and in any amendments to it we must make sure it serves the purpose we want and demand from legislation, which is the protection and betterment of New Zealand.

The next point relates to the Commerce Commission. The trigger that we talk about—and which we are changing, so we are going round and round here—was the market-share thresholds that would have triggered the Commerce Commission and the Minister to investigate the issue of competition in the New Zealand market. They have been pushed out, effectively, but as we have pushed them out to ensure ongoing supply to domestic producers or other independent processors we have seen, at the same time, an investigation by the Commerce Commission begin. So this is kind of bizarre: we have the Minister announcing a review and saying that, most likely, there will be other legislation coming forward, and the Commerce Commission undertaking an inquiry—not an investigation yet, but an inquiry as to whether it should hold an investigation—into the issue of competition. All those things are going on, and we are pushing this bill through, which again must, in summary, be called an academic exercise.

I go back to the substantive issue of the Commerce Commission asking the question of whether there is competition in the New Zealand market for milk products, for milk, and for the benefit of consumers. That is the first focus and priority that we have. In terms of competition offshore, I am less concerned about that. I think we must have collaboration, cooperation, and coordination in our offshore sales and marketing. That should occur, and for those companies that are independent and think they can go out there and beat up on Fonterra or on one another, I say just look over the fence at the meat industry and take some lessons from that.

In terms of competition for domestic supply and production of milk products, there is a question to answer, and I urge the Commerce Commission to be brave—it does so every now and then; not very often, I have to say—and to front up and undertake an inquiry into the way that the milk is distributed to well-meaning, innovative domestic suppliers of milk products. I welcome that, because that is what we need here, so that consumers are not paying more than they should.

In terms of the export supply, the Minister should be undertaking work. He is indicating that he is looking at it again, and I think most of the dairy industry, along with Labour, is fully supportive of that move.

I take issue with some of the snide remarks made earlier by members opposite. There is a sound understanding of primary production, of its value, and of the way it operates within the Labour Party—believe me. In fact, it is far better understood than in the National Party. Most of the good legislation in this Parliament has been passed by Labour Governments, and I stand on that record.

💬 Hon Dr Jonathan Coleman: Oh, come on, Damien.

Mr Coleman should take some history lessons, and he would find that out as well.

I will refer to new section 148, substituted in clause 4 of the Dairy Industries Restructuring (New Sunset Provisions) Amendment Bill, and particularly to new subsection (2), which refers to the terms of reference for the report the Minister has to consider, in looking at whether competition in the dairy industry is strong enough. There are a number of matters in there that look at any specific competition concerns in any specified New Zealand dairy markets. The terms of reference specify the person or persons in the dairy industry who must be consulted, and the method of consultation.

I wonder whether, in looking at whether there is enough competition in the dairy industry in New Zealand, we have to look a little bit beyond the dairy industry, and look at matters such as the price of milk. That is an issue of considerable importance to New Zealanders. In fact, a number of people, particularly health practitioners, have raised concerns about the price of milk in New Zealand, and the fact that, for instance, since April 2008 a litre of Home Brand milk at Foodtown has increased by 20 percent. When we consider that wages in New Zealand may be increasing at the rate of about 2 percent, then that is a significant increase. When we think about competition, which is what this bill is all about—competition in the dairy industry—then the prices that people are paying for milk and dairy products, I would have thought, would be quite an important factor in determining just how strong competition is in the dairy industry in New Zealand, and whether New Zealanders are gaining the benefits from strong competition in New Zealand.

In fact, if we look further through the bill in new section 148, we see that the select committee has included, under new subsection (9), “For the purposes of this section, other relevant government agency means any agency of the Crown (other than the Commerce Commission), whether a department, a corporation, a Crown entity, a Crown Research Institute, or another organisation or instrument.” It might be that we need to listen to what the Ministry of Social Development is saying, or what Work and Income New Zealand is saying. Maybe we should even be listening to Statistics New Zealand about what it is saying about food prices in New Zealand, and wages in New Zealand, and how those reflect the level of competition and the strength of competition in the dairy industry.

We know that we have a problem in this country with the increasing price of the basics such as milk, which is outstripping any increase in wages. In fact, with wages essentially flat-lining at the moment, and the cost of living increasing so much, that is a very important part of taking into consideration just how strong competition is in the dairy industry in New Zealand. Ultimately, that is what this bill is all about. It is about ensuring that there is strong competition in the dairy industry. In fact, it is about giving a bit of a leg-up, I suppose, to some of the smaller players in the dairy industry, so that they are able to participate and ensure that competition is strong.

The hope, of course, I suppose, for many New Zealanders, who are just trying to get by from day to day, is that strengthened competition would mean lower prices. That is not the case at the moment; we are not seeing lower prices at the moment. In fact, we are seeing prices go up and up.

So the Minister has to give consideration to a number of things. The Minister has to specify the date by which the report must be completed. That is a date “within 365 days after the date of a request made under subsection (1)(a);”, as stated in new section 148(2)(a). That seems like an awfully long time. In my previous contribution I said we wanted to give certainty to the dairy industry. I wonder what the Minister’s view is on that length of time, and I wonder what submitters to the select committee said about it. I note that it is a change that the select committee made to the bill. Not being a member of the select committee, I would like to hear some of the background—whether submitters thought a year was too long, not long enough, or about right. It seems like an awfully long time for businesses in trying to plan, or in trying to budget for the year ahead. Those 365 days might seem like a long time. Again, that is a question to the Minister. We would appreciate his taking a call and clarifying some of the issues about that—and clarifying some of the other departments he might be referring to.

Last year reports came out that put the Māori asset base at a value of about $36.9 billion. Just last week a report was released from the Minister of Māori Affairs, as a result of the commission that he had set up, which showed that that value has significantly grown. The question I want to—

💬 Shane Ardern: It won’t be on the back of the dairy industry.

Well, it is—significantly. It certainly shows that Māori are major contributors to the agricultural sector, and specifically in the area of dairying. That point is well made, and when I look at a bill like this, I have some questions that I too would like the Minister in the chair, the Minister of Agriculture, to take a call on. A peer-reviewed report that was looking at the Māori economy—a Business and Economic Research Ltd report—said that the growth of the Māori economy would be significant to the extent that by 2060 New Zealand could benefit from $12 billion per annum from just the Māori economy alone. If a significant proportion of that growth is on the back of the dairy industry in the primary production sector, then this bill, I think, raises some questions for me, in a very local way.

I am not the member for the interest for which I want to ask the question of the Minister, but I know that he is well aware of Tuarōpaki Ltd, and its combined investment with Wairarapa Moana Inc. in Miraka Ltd, to the sum of about $100 million. The basis of that investment would seek some guarantee of supply of milk from Fonterra, so I will ask one simple question—and I am not a rocket scientist so it is very basic—does this bill guarantee, long term, supply options to Miraka if it has made such a significant investment? I think that when we have a small player emerging on to the scene, and substantially founded in significant asset wealth, then it is a fair question to ask of the Minister, because Tuarōpaki also has interests in communications, and significantly in geothermal, food, and farming operations.

The company is located in Georgina te Heuheu’s area, and it is probably worth mentioning, given that she will be located at home, that she will have some very direct interests in ensuring that the economic opportunities of Māori in her part of the country are not hindered by bills like this one.

So I ask the Minister to take a call, and I tell him that a very simple clarification would help to assure Tuarōpaki, in terms of its supply of milk, that this bill will not prejudicially affect it in the short, medium, or long term. If the Minister could clarify the nature of how the bill will impact on that company, I think that people listening to the debate would find that clarification very worthwhile. On the back of a lot of positive comments about how the Māori economy can contribute to the overall wealth, growth, and opportunity trajectory of the country, then that would certainly be an important response.

I certainly think it is exciting when we see business investments like this from Māori, when they are positively engaging in opportunities, seeing a niche in a market, and seeing some potential in terms of how they can secure opportunities. They will obviously continue to grow their investments, so it is a fair question to put to the Minister. Quite simply, I ask the Minister again whether he could clarify that. I know there are people who are excited, perhaps, about following some of the other business models that Tuarōpaki is engaged in, and who are looking to some of the leads that that company is taking in some very innovative areas of investment. Kia ora.

Members, the question is that clause 4 stand part. Those of that opinion will say Aye, the contrary No. The Ayes have it. I will report this bill without amendment.

I raise a point of order, Mr Chairperson. I forgot to vote in opposition to the final clause. Could the vote be held again?

The CHAIRPERSON (Lindsay Tisch): I have already cast the vote and it is too late, I am afraid. [Interruption] Was the member wishing to vote against this?

That’s right.

The CHAIRPERSON (Lindsay Tisch): Well, the member could seek leave. It would for the Committee to decide, but I have already cast the vote. If the member wishes to seek leave, he may.

Thanks, Mr Chairperson. I seek leave for a party vote to be called in this Committee stage.

The CHAIRPERSON (Lindsay Tisch): A party vote is called for on clause 4. Is there any objection? There is no objection.

I move, That the report be adopted.