Dairy Industry Restructuring Amendment Bill

This is clauses 1 to 3, “Title”, “Commencement”, and, of course, “Principal Act”. We are familiar with the principal Act; it was one that we engineered and negotiated through in 2001, and we were quite proud of the fact that as a Labour Government we were once again passing a significant piece of legislation for the dairy industry. In fact, if you go back to the 1930s under Labour, the 1950s under Labour, and, of course, the 1980s, where we removed subsidies for all sectors, Labour has played a big part in dairy industry legislation. And, of course, in 2001 the Dairy Industry Restructuring Act, the principal Act, was passed to set the company up.

We cannot support this legislation, the Dairy Industry Restructuring Amendment Bill, and it is with sadness, I guess, that we find ourselves in that situation. If the Minister for Primary Industries had seen his way clear and the Government had perhaps backed what it says rather than covering its real agenda, then it would have supported the Supplementary Order Paper to limit the fund size. But the Minister and his colleagues clearly have other agendas.

The title of this legislation will be the Dairy Industry Restructuring Amendment Act 2012. I am tempted to put forward an amendment that would change the title to the “Dairy Industry Destruction Act”, because I have no doubt that this bill will lead to a build-up of internal tension within Fonterra as the focus of the board and the focus of management shifts from one of maximising the return to dairy farming shareholders through milk price and through dividend streams—less focus on dividend—and regardless of that division the farmers ended up with all of that return. That will change.

The commencement date, which is laid out here, says “comes into force on the date specified in an Order in Council”. Perhaps it will not come in. Perhaps the fund size will not reach $500 million, and within the 2-year provisional period it is possible, if dairy farmers are concerned enough and express their concerns through the Fonterra Shareholders’ Council, that this may not go ahead. Fonterra has been talking to another group, and it has been talking out of both sides of its mouth, I would have to say. On the one hand it has been talking to the farmers, reassuring them about milk price, and, on the other hand, it has been talking to potential investors, assuring them about the dividend streams. Actually, if one of those two groups spoke to the other they would find that the messages are somewhat conflicted at times. Mr Chairman, this relates to the commencement date in the bill here; I do not want to stray in any way from these three clauses. The commencement date does depend on the Order in Council or the conditions of Trading Among Farmers being met, and, as I say, they may not be met, and this “Dairy Industry Destructuring Act” may not come into being.

Mark my words: this legislation will see the destruction of the cooperative of Fonterra, and I say that with sadness. The Minister in the chair, the Minister for Primary Industries, laughs. This is the same Minister, of course, who is insisting that local councils sell down their assets, the same Cabinet Minister who is insisting that we sell 49 percent of our State-owned enterprises on to the stock market. It is little wonder, then, that he makes a joke of what will be building internal tension within Fonterra that will lead, regardless of any constitutional limit, to changes that, over time, will see the loss of our biggest company.

Shane Ardern, the chairman of the Primary Production Committee, who has done a very good job—as good as he possibly could inside a National Government—to bring about a fair piece of legislation, knows full well too that without the legislative cap the fund size will blow out, and the influence of those investors will overtake the interests of the farmers. In fact, if you look around the world, farmers are either peasants or highly protected. In this country they are in a unique situation, and the structure that has been Fonterra has enabled them to grow and succeed like no other company in this country.

I do fear that the title of this bill is misleading, that the commencement date will be a sad day when we see this opening of Fonterra to outside investors, and for the principal Act, which we were quite proud of—and it was not perfect. It was not perfect. The fair-value share has created tension that needed to be addressed, and there were ways of doing that. I acknowledge that. But the way that we are talking about doing it here, the introduction of Trading Among Farmers and the opening up to the market of the share value of a cooperative, is quite unique internationally—quite unique. It is a model that has not been tried anywhere else. In fact, putting the share value of a cooperative out into an open market for investors is not done anywhere else. This will be unique, because the fungibility—that funny word that we have all had to learn about—is designed to ensure that whatever unit investors decide is a fair price will be the price for the shares of Fonterra. And if, as some of the submitters say, that share price rises on the back of increasing dividends, then there is a potential for us to see the wash-out of many Fonterra farmers and the undermining of their milk supply base. And the member over there who chairs the select committee knows full well what that means for a company.

There are many, many dangers that the open-market trading of units has created for Fonterra the cooperative, and the sooner that is acknowledged and understood, the sooner the farmers will realise what they are getting into. They have a chance. The Fonterra Shareholders’ Council has yet to endorse it. It could stop the commencement date of this legislation—that is, clause 2—by not endorsing Trading Among Farmers. It is up to the shareholders’ council now. The Minister laughs, but actually there is a legal requirement for the Fonterra Shareholders’ Council to sign off on this. It has not done so yet. It may be, if it is listening and thinking, that it might start to realise what it is actually signing off on.

We do not support the bill. We do not support these three clauses, because we think that they are actually misleading the farmers as to what, indeed, they are getting themselves into.

I have just got to address one or two fundamental issues that have been raised on the Dairy Industry Restructuring Amendment Bill. This part of the Committee of the whole House gives us a good opportunity. We need to remember as a Parliament, as the Committee of the whole House, that 95 percent of a farmer’s income is the farm-gate milk price. That then leaves that economic return from the fair value share, of 5 percent. What Fonterra is talking about is a pool of 12 percent of that 5 percent. So we need to keep things in perspective.

I thought that one of the most compelling conversations that we had while we were listening to submissions came from the chief executive officer of Fonterra. He was talking about the interest they were forced to pay on the spot market to cover various activities because of the conservative business setting they had to run, because of the redemption risk that they were exposed to. They at times had to pay 14 percent interest, which is well and truly above what the market rate was, or 11 percent interest. In actual fact the market rate was 4.5. I just put it to the Opposition on the other side of the Chamber that inactivity in the present climate will actually deny Fonterra realising its full potential to New Zealand.

We hear the Opposition members talking about the cooperative model. I put it to the Opposition that from day one of the dairy industry it was a no-brainer but to cooperate, because the product itself would not last any more than a few hours. So cooperation is not the invention of this House or of any particular party; it was the invention of those people who entered into that sector, and those people today, on average, would have investments, or exposure to the capital markets themselves in which they have borrowed, of $3 million and beyond. There are banks that have taken risks with these people, and consider them a good risk.

Here we are, being hung up on a piece of legislation that is very good, well-thought-through, well-balanced, enabling legislation. It is legislation that has been brought to Parliament by virtue of the insistence of Fonterra itself. It was voted on originally in 2010, and got a vast majority. It had another vote in June, and again it received 66 percent support. I believe that the Opposition, when you look at the minority reports, took a very inflexible position early on, and that has been manifest in the very debates that we have heard during the Committee stage. Fonterra itself, within its constitution, will have a vote at the annual general meeting. It must trigger 75 percent agreement, as to the size of this pool. It is very descriptive. They have put their cards on the table, and the farmers, I believe, at that annual general meeting will support that motion.

So what is left to say, but that we wish this bill all the very best. I just want to say how proud I was to be on the Primary Production Committee, which looked towards the future of this wonderful cooperative. I am 100 percent sure that 100 percent farmer ownership is not the issue, because when you look at the structure of it, that will happen only if the pool of the fund is allowed to become too large, and, effectively, that pool is going to be limited. I would encourage members, rather than being like Damien O’Connor, the Labour member who speaks what Labour really thinks about farmers, and who is in opposition to it, to broaden out and get some other members on the select committee who can be futuristic and contribute—

The Green Party has, as we say, a major concern about this bill, the Dairy Industry Restructuring Amendment Bill. What we have been led to believe, through very good advice, is that there is an actual risk of technical insolvency because of the way that this bill has been drafted. We have issues around the fair value share. We sought, as a select committee, independent and expert advice and then it appears that that was principally ignored. The Primary Production Committee worked very, very hard on all parts of this bill to try to make some serious sense of it and to see how we could look after both “New Zealand Inc.” and the individual farmer families that were going to be affected by it.

We get stuff from some of the Government members of Parliament, and from the Minister for Primary Industries at times as well, suggesting that we are opposed to farmers in New Zealand, that we are opposed to the growth of a particular sector in New Zealand. We are far, far from that. We want more people on the land, and these provisions in here look to be reducing that.

We heard some statistics before showing how many fewer dairy farmers there are. Fewer dairy cows—absolutely not. It is the intensification and farming management that has gone to—basically, I was going to say to hell in a handcart—not where we are going with the growth in the number of farmers. We need more people on the land, and we want to make that possible through intergenerational farming and through looking after a co-op that is going to give them the best deal. But unfortunately the co-op has gone for a walk, and these provisions show that. They are not about supporting individual farming families. They are about supporting the big, big companies that clearly Cabinet and others seem to be supporting, over and above the traditional supporters of even the National Party.

It was noted as well that these provisions would help contestability and theoretical open competition. Well, that is a philosophical, neo-liberal approach. It is not necessarily about helping New Zealand farmers. That went right through to what was going to be part of the milk price and the need to support independent processes. We note that in fact when the Dairy Industry Restructuring Act first started, when Fonterra first got under way, two smaller co-ops were basically dealing with 4 percent of the raw milk processed in New Zealand. That is now 11 percent. This bill is not needed to help independent processors, at all. And why should it be? We need to be looking after the co-op, the single-desk model that has worked so well for certain sectors of the primary industry in New Zealand.

The Greens obviously will continue to oppose this bill. We look forward to, hopefully, a change of Government in 2014, when we can get in and address that and stop this sell-out of primary industry and family farmers by a party that we would have expected to support them to the nth degree.

I stand to support my colleague in focusing our attention on the title of this bill, the Dairy Industry Restructuring Amendment Bill. Prior to your arrival, Mr Chairperson, I was censured—I would not say unfairly, but disproportionately—for fear of wandering beyond what are the proper boundaries of a contribution at this point in the magisterial process known as the legislative process, etc. But when we look at the word “restructuring” there are three things I want to say, in all seriousness.

I do not think that we were ignorant of the fact that there are challenges in relation to access to capital, managing capital, and, in the year of the perfect storm, a lot of what we were told. We had to trust in the integrity of what the officials reassured us was accurate, and quite frankly, what a lot of the senior members of the industry were telling us.

We then delved into whether or not there were other alternatives to overcome the capital challenge that one no less august than Sir Henry van der Heyden told us of, and may he do well for the iwi of Tainui. He has certainly done well for himself, but that is another matter. So we are not ignorant of the fact. I say to the Minister for Primary Industries that we are not ignorant, but we remain and will always remain either suspicious of, or deeply troubled by, the tension that exists between, in this restructuring, producer capital and investor capital.

Even at this late stage of the debate it is a worthwhile and a legitimate concern to continue airing. The Minister for Primary Industries has all the power and the authority, and he represents a party that enjoys enough support in the House, I would think, to usher this bill through. But without a doubt we are going to see as we go forward, in the event that enough investors actually jump into what potentially could be dumb capital—I doubt it, though. I think canny long-term investors will see this fund as the first step or an initial brick in the wall. That is the first rather significant area of concern that we have amplified at all key stages in this debate.

The second concern is whether we have actually, through this restructuring, strengthened the dairy industry or served the interests of the executive within the institution empowered to drive performance for the industry. Unfortunately, only time will tell. I accept that the farmers will vote, because I sure as hang know they do not vote in the north for us. But that is another matter. They will vote, and they will fail or flourish, depending on the outcome of that vote and the stewardship that they themselves or the executives bring to bear on the question as to when the new derivatives trust—which is broad nomenclature—which is what I have been using to describe it, and also Trading Among Farmers strike a price as to what is the value of the share.

At one level it seems almost contradictory that we extol the virtues of a cooperative but we borrow the language and we garb the essentials of the cooperative in the context of Fonterra with a language more akin to a debate about a Wall Street company. But that is the fusion of having a powerful international trader and marketer such as Fonterra and also wanting to uphold. That is the second thing.

We accept, I accept, that at the end of the day it is the farmers. But, as I have said during this debate about restructuring, Fonterra came into existence by dint of what we did in this House, so it is not unreasonable for us as legislators to either challenge the farmers or challenge ourselves, and not accept uncritically the notion that “You can’t talk about our business because it is farmers’ business.”

Farmers’ business in so far as it requires legislative amendments is legislators’ business. Any farmer who thinks that that is not accurate or who seeks to deprecate us as legislators playing our rightful role I hope I meet in a future guise, when I am a Minister with some level of influence over their affairs. The third thing, at the end of the day, is the price of milk and whether or not the minnows—Miraka, Open Country Dairy, and others—will be able to afford to buy the milk from Fonterra. The Minister has had an opportunity to allow Te Ururoa Flavell’s amendment, but he swiped it aside, just as he swiped aside my senior colleague Damien O’Connor.