Dairy Industry Restructuring Amendment Bill (No 2)

I move, That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a first time. I nominate the Primary Production Committee to consider the bill. The purpose of this bill is to place a legislative limit on the proportion of Fonterra Cooperative shares that can be sold by farmers into the new co-op unit fund. The bill provides that Fonterra must ensure that the new co-op fund does not constitute more than 20 percent of the total number of cooperative shares. If the 20 percent limit is reached, Fonterra must cease the sale of shares into the new co-op fund and take action to reduce the proportion of shares in the new co-op fund to below the 20 percent limit within 90 days. The current Dairy Industry Restructuring Act places no legislative limit on the proportion of Fonterra Cooperative shares that can be sold by farmers into this fund. I am proposing that a legislative limit is needed for this company.

Fonterra is our single largest company. It is a cooperative. It controls about 40 percent of the global trade in dairy products throughout the world. It is a cooperative, as I said, and it is owned by New Zealand dairy farmers. There are very few companies of any size that are owned by New Zealanders in this country. The dairy industry has been built through the wisdom of the Labour Party from the 1930s to the 1950s, through the 1950s, through the 1980s—

💬 Hon Members: Ha, ha!

Well, firstly, the Labour Party brought into place a price guarantee for dairy farmers; secondly, it created the Dairy Board; and, thirdly, in 2000 we created Fonterra in legislation. The successful dairy industry is being guided by wise legislation endorsed by parties across this House. What we had last year was a new capital restructure of Fonterra. It was called “Trading Among Foreigners”—no, Trading Among Farmers. The dairy industry is arguably, as I say, not only one of the most successful industries but also one of the most attractive industries for investors. Back in the 1990s, the New Zealand Dairy Group, the single largest cooperative processing company, was focused on a corporate strategy for the Dairy Board. That was rejected by most participants in the dairy industry, but, in the formation of Fonterra, I suggest, some of that corporate strategy continued on with the new management and governance of the company. There has been for many years a determination by some—Sir Henry van der Heyden has been on the record as saying that he wanted to restructure the capital of the cooperative Fonterra, and, indeed, to recognise his success, he has done just so.

The question is what that has done for Fonterra. In a relatively short space of time dairy farmers who are members of a cooperative that, in its pure form, has a nominal value share, have moved from a fair value share of about $4.50 up to a listed unit price of $5.50, and now, I think, today it is just short of $8 per unit, or $8 per share value. Many observers of the stock market might say: “What a wonderful success.” The problem for suppliers in a cooperative company who are obliged to buy one wet share for every kilogram of milk solids that they produce is that they have to front with a larger amount of capital to be active, participating shareholders and owners of the company Fonterra. On top of that we now have investors, about $500 million worth of investors—or it would be greater than that—who have the right to the dividend flow from the shares of Fonterra. They are not dairy farmers, and they have purchased the right through the purchase of units—a perfectly reasonable investment proposition allowed by the Trading Among Farmers legislation.

What that has started to do is unravel the cooperative that we have been so proud of. I am sure Mr Ardern will get up and endorse some of the things I say. There are now dairy farmers who want to continue to be shareholding owners of Fonterra and grow their supply, but they cannot afford to because paying $8 for every additional kilogram of milk solids is not a smart investment decision for them. I spoke today to a very astute farmer who has a number of farms and who has just signed a contract with Fonterra to supply them with just milk, without any corresponding wet share purchase. That might seem a good deal too to someone, but for the dairy industry and the success that it has been built on, this is the beginning of a new structure and, I say, an unravelling of the dairy industry and its success. The incentive to increase production—which some say is a negative in terms of environmental impact—has now gone. That has now gone because it is not a sound economic proposition for many dairy farmers.

The greatest beneficiaries of the Trading Among Farmers legislation have been foreign-owned companies and other dairy companies in this country, because the disincentive to supply additional milk to Fonterra has meant that they have sought out opportunities with Open Country Dairy, a privately owned company; with Synlait a Singaporean-owned company, which is about to list; and with Westland Milk Products, a cooperative company. Tātua has its doors closed, but now on the horizon we have Yashili and Yili, two companies that dwarf Fonterra in terms of their total size. They are Chinese-owned companies that have come down and started to invest in this country. Some might say that there is nothing wrong with that. I am certainly not opposed to Chinese investment in adding value to our economy. The problem is that their benefit may be off the back of Fonterra’s new capital structure and a shrinking supply of milk to our No. 1 company and the biggest participant in the biggest industry in this country. The jury is out on what that might mean over time.

What Fonterra did in the lead-up was to say many, many things to farmers, to convince them that Trading Among Farmers was good for them. Many of those things were not true. Fonterra has said that if Trading Among Farmers does not work for farmers within 2 years, it will close it down. That will not occur. It has said that it was not about capital raising. It has said that it will lock in ownership and control of Fonterra. Those things are not true, because we are starting to see that unravel. What my bill does is put in legislation a limit to the total amount of Fonterra shares and units that can be traded on the open stock market, because, as sure as night follows day, the chances are that those units, if traded on the stock market, will fall into foreign hands, and we will lose the dividend streams. If the constitution of Fonterra was to be changed by over 75 percent of farmers—and that may occur because of internal pressure—then the size of that fund could be extended.

Some will say that constitutional protection is enough. Banks will tell farmers what to do when the payout drops. The farmers will be demanding access to the full value of their shares on an open trading market, because they desperately need the money. That will be the pressure that ultimately unravels Fonterra. What I say through this bill is that before that happens, Fonterra should come back to Parliament, back to whatever Government is in power, and ask for a change in legislation before it unravels before our eyes. The 20 percent limit on the unit fund size in legislation is the least that Parliament can do to protect our single largest company, which is owned by New Zealand farmers and is the most outstanding performer in the world of international dairy trade. This is too valuable for us to lose. All I ask through this bill, and I hope that the National Party will support it, is that it step in and put in a legislative limit, just as we put in place legislation to form the successful dairy industry—

I am sorry to interrupt the honourable member.

It is a privilege to rise to speak in this debate tonight, but unfortunately for the previous speaker, Damien O’Connor, the National Party will not be supporting the member’s bill, the Dairy Industry Restructuring Amendment Bill (No 2). There is a range of reasons for that, but let us start right at the beginning with a little bit of history. Fonterra was not formed by the Labour Party, despite the comments of the previous speaker. Fonterra was formed because a group of farmers, if you go back far enough in time, came to the Government of the day, saying that they were struggling, as a lot of our colleagues in other industries in New Zealand do, with collective buying by massive buyers. In fact, most of those buyers at that stage were based in Tooley Street in London.

💬 Hon Damien O’Connor: When was that, Shane?

They used to travel out to New Zealand—I think it was about 1936, Mr O’Connor, slightly before you were born. It may have been before you were born. Those buyers would come out to New Zealand. They used to trade one dairy company off against the other and drive the price down. Does this sound familiar? Does anyone know where they could find an industry in New Zealand today where similar types of tactics take place? That is exactly what was happening.

So the Government of the day said to the industry: “What would you like?”, and the industry said: “We would like to have a much more focused marketing structure.” History has a wonderful way of repeating itself. So from that, the New Zealand Dairy Board was formed. After a long period of trading under the name New Zealand Dairy Board, the industry itself again came back to the Government and said: “This is a very tiresome process. Every time we want to change or make some modification or change market structures or do something different, we are constantly coming back to the Government cap in hand for legislative change, and we think we can go it alone. We do not need the single-desk legislation, so we would like a reform of that.” And from that the 2001 Dairy Industry Restructuring Act was born. It crossed two Governments. It was first initiated under the Shipley Government—

💬 Hon Damien O’Connor: Rubbish.

—and it was passed by the incoming Clark Labour Government, with Jim Sutton as the Minister. That is the history. Go back and check it to see whether I am right or wrong. That is the history. I remember it well. I served on both select committees in both Parliaments.

So at that point in time, around 10,000 shareholders of what was the combined industry across New Zealand decided that they could form critical mass by merging the two largest dairy companies in New Zealand, which were Kiwi Cooperative Dairies and the New Zealand Dairy Group, and form a new company, taking on board the Dairy Board, called Fonterra. It was called GlobalCo and then the Global Dairy Company I think originally, and in the legislation it is known as the “new co-op”. And the name Fonterra was born out of that.

As an end result of that we have seen unprecedented growth in that industry in the history of New Zealand, and, actually, as the previous speaker said, it has now become 40 percent of global traded dairy products. It is a success story. No matter how ideologically driven you are or what position you come from or how counter-intuitive the model might be to you or what other arguments someone might put up about it, it has been successful. The facts speak for themselves. And it is a New Zealand - owned company—entirely owned by New Zealanders; 10,500 shareholders—and so we did not want to see it broken up or destroyed or eaten away or floated off on the New Zealand Exchange, or whatever the argument of the moment might be.

But then it becomes a question of where the State stops and starts, and how much State intervention there should be. Some would argue from a pure point of view that the Dairy Industry Restructuring Act itself should go, and that there should be no legislative control or Government involvement or meddling in this. Instead of that we have a very complex Dairy Industry Restructuring Act that puts a whole lot of constraints on the behaviour of Fonterra and the requirements that it must meet. And that is where Parliament has reached a consensus, and, as the previous speaker said, pretty much with cross-party support. That is what is there at the moment.

So the question then becomes what other protections or other such things should the State have or should put in place, either for the consumer or for the company itself. The company itself, by 75 percent—this is a figure that Parliament does not understand. Give me a bit of a hint how many times you get 75 percent support in this Parliament for a piece of legislation or a policy position—

💬 Sue Moroney: Actually, a lot.

It happens from time to time, but not that often.

💬 Sue Moroney: It happens a lot.

It happens from time to time, I accept, but not that often. So 75 percent of those 10,500 shareholders voted at their annual general meeting to put a cap of 20 percent on the tradable amount of their shares, which is exactly what the member’s bill is asking to do. And, of course, if you do further analysis on that, what you will find is that the 20 percent can never actually be 20 percent; it is up to 20 percent. Because of the trading in and out that takes place in this Trading Among Farmers arrangement, the company itself has to make sure that it never exceeds around 18 percent—the last figure I saw—because otherwise it could momentarily be in breach of its own constitution.

So 20 percent is really a glass ceiling, if you like, that the company must pull up before it reaches that level. It currently sits at between 10 percent and 15 percent. I do not know that anyone could mount a vigorous argument that that is a dangerous position for the company to be in, and a position that could likely end up with the dissolution, breaking up, floating, or management takeover, etc. of the company. A further protection that the company has within its constitution is that the board must be made up predominantly of farmers. The last time I looked at it—and I stand to be corrected by the member—they have now voted for a nine-member board with three independent directors. I do not know whether that has actually been implemented yet, but that is the direction they are heading into, overwhelmingly controlled by the farmers themselves—elected from within their shareholder base. Are they going to go and do something that the farmers do not want? They have tried.

There have been times when the leadership of the company has decided that it is going to go off in a direction that its shareholders do not like. One thing that I can tell you as a shareholding farmer—and I declare that at this point—is when we get unhappy with the board we sack them. Or we certainly give them the message: “Change direction, or we will.” That has happened on a number of occasions. I understand the concerns that have been raised, but I think it is actually fair to say that right at this point in time the Fonterra structure is what the Fonterra board has asked for, what the Fonterra shareholders want to see, and I think the success of Fonterra speaks for itself.

It does frustrate me that I have to come back to this House time and time and time again and justify the success of this company to Parliament. It seems to me that it is overwhelming, but it does frustrate me that you have to come back. I guess it comes down to the final point, and that is: do you trust them, or not? Do you trust—and I am not talking about you, Mr Assistant Speaker, I am talking about Parliament; I am sorry to bring you into the debate—these 10,500 hard-working, dedicated farming families who have built this industry, or not? It is that simple. My money is with the farmers.

It is a real pleasure to rise and speak on members’ day to support my colleague Damien O’Connor’s bill on dairy industry restructuring, the Dairy Industry Restructuring Amendment Bill (No 2). I do rise with some pleasure to support this, because we have just heard a speech from a member of the National Party, and, surprise, surprise, National is voting against it. But, after all, this is the party that brought us the sale of State assets—flogging off the family silver to overseas interests. We used to, actually, have 100 percent ownership of Mighty River Power. One-hundred percent of New Zealanders used to own Mighty River Power until very, very recently. Now only 2.5 percent of New Zealanders have an interest in owning Mighty River Power. So I think it is no surprise that when this very good bill comes before the House, where the aim is to ensure that our biggest and our most successful company stays in New Zealand hands, of course, the National Party votes against it.

In reality, the National Government does not believe that the New Zealand people have a role in actually designing their own future. It actually does not believe that. It thinks that the market is supreme, and that the market is the almighty that the Government must bow to. That is the fundamental reason why the National Party will not support this very sensible bill. What is the evil that the National Party sees in this bill, which supports the cooperative model that Fonterra has had through all of its different manifestations? Why is it that the National Party will not stand up for supporting the cooperative model? We have heard some of the history about the New Zealand Dairy Board and how Fonterra came to be, and, actually, it is a story that I think would be good to hear told in a lot more detail, because although we have had some to-ing and fro-ing about whether Labour was in power or National was in power, I think people clearly understand that that type of cooperative, New Zealand ownership model is fundamental to Labour principles and values. People can see how closely that is aligned with what Labour stands for, so people will get that. This is a New Zealand - grown concept. That is the exciting thing about it, and it is successful internationally. The only other thing that I think comes close to it—and, of course, it is not a commercial entity—is that other great New Zealand icon of Playcentre and the Playcentre movement. It is a New Zealand - grown model that we own and that the rest of the world looks at in awe and goes “Isn’t that great?”. Fonterra fits that exactly.

What this bill wants to do is ensure and enshrine in legislation certainty that there cannot be a private or a foreign takeover of that cooperative model. That is, quite simply, what we are aiming to do here. As much as the previous member might say: “Don’t worry your pretty little heads about it. It will never happen, because the market will ensure that it doesn’t happen.”, well, I would ask that member to tell me what happened in the situation of Fisher and Paykel Appliances. It started off with just a 20 percent—only a 20 percent—investment from a Chinese company called, I think, Haier. I am not sure exactly how you pronounce it. Haier originally had only a 20 percent investment in Fisher and Paykel Appliances. That, over time, ended up in an eventual complete takeover of Fisher and Paykel Appliances by that Chinese company. That is what concerns the Labour Party. We are not prepared to just wait and see what happens with Fonterra, because Fonterra is so fundamentally important to this country and its economy. We are not prepared just to let the market have its way. We want legislation in place that will protect Fonterra. This bill will definitely keep it as a cooperative in the hands of New Zealand farmers.

Firstly, I must congratulate my colleague from the Primary Production Committee and fellow rural New Zealander Damien O’Connor on having this Dairy Industry Restructuring Amendment Bill (No 2) drawn from the ballot. Drawn from the ballot may be a little rich, because we heard tonight from Denise Roche that it is, in fact, a raffle. I thought that was pretty rich coming from the party that does not really like gambling very much. I commiserate with Damien O’Connor, however, on the fact that I will not be able to support this bill. Contrary to what the previous speaker, Sue Moroney, said, we are not not supporting this bill because we believe in free markets and things like that. We are, in fact, not supporting this bill because we trust the 10,500 dairy farming families of Fonterra to get it right and to do the right thing by their company.

The bill originated out of concern that Fonterra may be sold down the road by the Trading Among Farmers policy, which was introduced after much consideration in order to enable Fonterra to achieve a stronger capital base. Capital, of course, is vital to the primary production sector. It is vital elsewhere in our economy. This fact has never been more apparent than it is in the discussions taking place in the meat industry, which Mr Ardern inadvertently referred to some time ago. Certainly, capital is a very important factor for our agricultural industry in New Zealand. Hence, the Trading Among Farmers initiative was brought to fruition as a result of the Dairy Industry Restructuring Act, an Act that had a complete and constructive select committee process at the time of its introduction. There was criticism of Trading Among Farmers, but you get criticism of anything in a democracy. It was well supported in the end, and I think has been well proven.

As the member for West Coast - Tasman stated, he was uneasy about the cap that Fonterra itself has since imposed on the fund, and introduced this member’s bill to place a cap at 20 percent of that fund. My recollection was that he introduced the member’s bill prior to Fonterra setting in its constitution its own cap of 25 percent of that fund. The result of this fund being established has seen spectacular growth in the value of these tradable units, from a list value of $5.50 to, I think, trading today at $7.97 or something like that.

Interestingly enough, the sale of farmers units predicted by many at the time of the launch or float has not occurred and, in fact, has considerably strengthened the balance sheet of our dairy farmers in New Zealand. Fonterra, of course, attracts about 80 percent of the milk in New Zealand, and, contrary to Mr O’Connor’s assertion that the price of $7 or $8, as it currently stands, will put off people entering the industry, I think the fact that the Fonterra shareholders have retained their shares, despite the very attractive price, really means that their capital base is built to a strong enough extent that they will continue to join and support their industry as it moves on. Interestingly, today we have also seen the next round in the life of Synlait, as it announces its intention to list on the New Zealand Exchange. Synlait is one of a number of players in the next tier of the dairy industry in New Zealand and, of course, is based in Canterbury.

All in all, the dairy sector, in good heart, has built a new level of resilience and confidence as a result of Trading Among Farmers, and is playing a greater role in our export receipts than ever before and, in fact, in New Zealand’s future. There were a number of other assertions made during the last couple of speeches, and I think they can demonstrably be proved to be untrue. I think that as the Fonterra company attracts the level of milk it does, at about 80 percent of the New Zealand production, production is rising at a greater rate than in fact can be swallowed up by the new companies coming into New Zealand. Fonterra is having to build a significant amount of new infrastructure itself to keep this going, and so I think we are seeing the dairy industry in extremely good heart at the moment. I think that Trading Among Farmers has played a very good role in strengthening the capital base of Fonterra. I also think that the price that the Trading Among Farmers shares has got to is probably well backed by the assets of Fonterra, and can be demonstrably proved to be a useful acquisition for the dairy industry. Thank you.

I am slightly surprised to be taking a call at this stage, but I am very happy to take a call now and support my colleague from West Coast - Tasman, the Hon Damien O’Connor, with his Dairy Industry Restructuring Amendment Bill (No 2).

This is a re-imagining of a Supplementary Order Paper that Mr O’Connor put through when the changes that established the Trading Among Farmers system were passed through Parliament. I think what Damien O’Connor is doing here, because he is a decent bloke from the West Coast, is giving the Government another chance to get it right. It got it wrong the first time around, and, you know, fair is fair. He has been lucky enough to have his bill drawn from the ballot, and he is giving the Government another opportunity to get this right. Sadly, it does not seem to have learnt from its errors, and it is still refusing to support what is a perfectly sensible and logical piece of legislation that actually, in fact, reinforces in law, as Shane Ardern outlined, the position that the Fonterra shareholders—the farmers—actually support.

They have voted internally to keep a cap on the foreign shareholding, or the non-farmer shareholding, of Fonterra. Ought we not just reinforce that and give them some security by enshrining that in the law? Over the years what we have seen—and various members have discussed this—is that the dairy industry in New Zealand has required a hands-on Government. It has not been left to the market. Governments over the years, over the decades, have had to step in and create the structures that have supported the New Zealand dairy industry.

What this is, in fact, is a step back from the cooperative model, from the hands-on supported model that Governments have pursued over the decades, towards more of a market model. That just simply has not worked for our dairy industry. What we see here is, of course, a classic New Zealand story, where there is no point competing amongst ourselves within our tiny market. We have to cooperate in New Zealand to compete on a global scale. Really, what Damien O’Connor is doing is continuing that tradition of Parliament, Government, and the dairy sector working together to get the structure right so that Fonterra, the dairy industry, and New Zealand can effectively compete on a global scale.

I think there is another really important point here, and that is that Fonterra is essentially a single purchaser of raw dairy products in New Zealand. Single purchaser model—it can work very well. It really can.

💬 Hon Ruth Dyson: Can it? Tell us about that.

Well, you could apply it to a range of industries. You could apply it to keeping the cost of medicines down, for instance, with Pharmac, or, indeed, to getting the price of electricity right, as the Labour Party has suggested and of which the National Party is so dismissive, of course.

What is really important is that if you have got a single purchaser that has a lot of market power, it has got to know who it is working for—it has got to know who it is working for. Pharmac knows that it is working for the people of New Zealand. It is owned by the people of New Zealand and it is working for the people of New Zealand. NZ Power, likewise, would be owned by the people of New Zealand and it would be working for the people of New Zealand. Fonterra is owned by the farmers and it is there to work for the farmers. But as we dilute that, and as we make it so that it is perhaps not owned by the Australians but the dividends from Fonterra start to go to them—those Trading Among Farmers shares have mainly gone to the Australians, not to domestic shareholders—then Fonterra has to start working for somebody else. It is a bit like this Government, actually. It is not working for New Zealanders; it is working for somebody else. It is working for Skycity and Warner Bros and what have you.

Fonterra has to start working for somebody else, not the farmers. But it has a lot of power—it has a lot of power—and it has been using that power to share the dividends of its success with farmers. We have to make sure that something like the single purchasing agency that Fonterra is is absolutely certain about who it is working for—absolutely certain about who it is working for. That is why we in the Labour Party, who know whom we are working for—we are working for New Zealanders, we are working for New Zealand farmers—support the excellent member from West Coast - Tasman, Damien O’Connor, with this superb bill.

Are you calling, Mr Browning?

💬 Steffan Browning: Yes, I am.

I did not hear you. Speak louder.

It was a quiet squeaking. Now that I have the voice back, I rise to speak to the Dairy Industry Restructuring Amendment Bill (No 2). I am very pleased to be supporting this bill. When the original bills around Trading Among Farmers were going through and in the discussions around that, I felt that the 20 percent cap was, in fact, too high. But our support of this bill is really showing that we are prepared to see a compromise because we regard this issue so seriously.

I think it is a very wise bill, and it seems to be very disappointing that National members could not achieve the agreement needed within their group to support this bill. I am sure there was some division, but not inside those walls, and it is very disappointing that you are voting en bloc against it.

The need for this bill is very high. The risk, as has been pointed out, of this being a thin end of a wedge towards the breakup of what is probably New Zealand’s most successful co-op, Fonterra, is high.

It has already been shown and it has been spoken of here tonight about the overseas ownership. I will also point out that in the fairly recent Farmers Weekly, when we are talking about unit prices on the stock exchange rising to above $8—the 15 percent rise in that particular week was 45 percent above the listing price. There are all sorts of pressures coming on around this. It could well be, in terms of a weakness around the issues of the shareholders’ fund, that farmers under pressure in a real crisis, or even in a crisis contrived by investors or traders, may change their stance on what the cap should be, although they have got a 75 percent farmer vote. What pressures have we seen come on to other co-ops or collectives in the past? We have seen what happened to ENZA. We saw a major crack in ENZA and then a major hurt to the pipfruit industry of this country, and it has not really recovered.

We see that this same possibility could hit Fonterra, and I think the Labour Party bill here was going some way towards ensuring that that could not run away very quickly. Sure, the farmers have votes within Fonterra, but, unfortunately, some of those on the board, and certainly in the executive, seem to have gone for a bit of a walk from where the real membership base has been, and that shows even more the need for putting a cap in under this bill.

I notice as well, in terms of the risks of weakening the co-op, the situation that the meat industry is in at the moment. It is clear that the meat industry is looking at models such as Fonterra as a possibility to deal with its woes, and it would be a shame to see the model that it might be looking at being weakened and not being strengthened by the possibility of this cap.

There were enough real solutions for Fonterra. It could have done more retentions. It over-exaggerated the redemption risk well and truly. That would have been solved, but it carried on and, unfortunately, the Government of the day bought into that and has allowed the Fonterra executive its way. The direction of Fonterra, I believe, needs questioning, but the fundamental thing is that the co-op needs protecting, and this bill would have gone some way towards doing that.

In terms of the overseas ownership, it is disappointing. What has happened was what we suggested might happen, and yes, it will just go the same way as the Mighty River Power thing. It seems that some would say that—

Order! The member’s time has expired.

I want to congratulate Damien O’Connor on having his bill drawn from the ballot—the Dairy Industry Restructuring Amendment Bill (No 2)—and I am very pleased to be speaking in its first reading. It is a little bit obvious, though, that this bill is doomed for failure. There is probably a very good reason for that, which is that it is an ill-conceived bill that really encapsulates why Labour hates farmers. It has really demonstrated that to New Zealand and to the farming community over a number of years, it has demonstrated it to the Waitaki electorate a couple of times, and everything that Labour has done subsequently, during my time in Parliament and when Labour was still in Government, has illustrated that it has no empathy with the agricultural sector. It, with the Greens, has no love for the agricultural sector. It actively campaigns and actively brings policies and bills to this House that are to the detriment of the productive agricultural sector in New Zealand.

So this bill, this dairy industry restructuring bill, is really a demonstration, through Damien O’Connor, of the strong desire of Labour and the Greens to have absolute State control over private business in New Zealand. It is the most interventionist little piece of member’s bill that I have seen coming through this House. What it seeks to do is tell and direct the directors of Fonterra how to go about their business, even though there has been the Dairy Industry Restructuring Amendment Act passed very recently through this House. I understand that the issue raised in this bill was considered in the Committee stage of that Dairy Industry Restructuring Amendment Bill. It was thoroughly canvassed, and the only people who thought it was a good idea were—I do not know—Labour and New Zealand First members, as it happens, and even the Greens in this instance thought that this particular idea of limiting the co-op fund to 20 percent of the total was a good idea. Everyone else considered it and put it in the waste-paper bin, where it belonged, with a lot of the other Green and Labour proposals that have come before this House.

It was a previous member on that side of the House who crowed very proudly about some of the other interventionist policies that those members would bring and foist on the New Zealand public if, by any sad chance, they ever happened to be the Government—a very faint chance—such as bulk-buying electricity, putting a price on water, and crippling the agricultural industry with an emissions trading scheme obligation that would absolutely cripple agriculture, industry, and the New Zealand economy, and they would even go so far as limiting stock numbers on farms. That would surely drive farming and agriculture into the ground.

Of course, Labour was also the party of David Parker, who sought to run high country farmers off the land by basing their rents on the view that the merino sheep had as they were grazing the pastures on the slopes overlooking Lake Wānaka.

💬 Hon Ruth Dyson: How stupid.

I beg your pardon? Sorry?

💬 Hon Ruth Dyson: Stupid.

Oh, right. So this is a most excellent bill because—and I am looking forward to Ruth Dyson’s contribution on this bill, because she is a well-known agricultural expert and I cannot wait to hear what she has to say—all that this bill does is try to intervene on Fonterra directors. Fonterra is a world-renowned, world-leading, and farmer-owned company. It has been through the process of the Dairy Industry Restructuring Amendment Act, which amended the Dairy Industry Restructuring Act, and all that this bill seeks to do is impose a little bit of Labour interventionism, a little bit of Labour-Greens State control, and this side of the House will not have a bar of it.

I am pleased to rise on behalf of New Zealand First to speak on this, the first reading of the Dairy Industry Restructuring Amendment Bill (No 2). New Zealand First is proud to support this fine member’s bill, and we commend the Hon Damien O’Connor for introducing it to the ballot and we congratulate him on having it drawn. This bill has come about because of the Dairy Industry Restructuring Amendment Bill, which was passed by this House last year. We spoke against that bill. We voted against it. New Zealand First voted against that bill because of the possible ramifications that we could see it having for New Zealand’s dairy industry.

Without wanting to relitigate that Act, or the entire process of that Act, we are happy to support Mr O’Connor’s bill. Indeed, we are grateful for the opportunity to support it, because we see it as having the potential to circumvent some of the worst possible effects, the most deleterious effects, that the Dairy Industry Restructuring Act could potentially see visited upon the dairy industry. The concerns we hold are essentially the same as those Mr O’Connor holds, and they are chiefly centred on the Trading Among Farmers scheme—the TAF scheme—which is one of the major planks, if not the major plank, of the Dairy Industry Restructuring Act.

Trading Among Farmers allows for the formation of what is somewhat euphemistically called the new co-op fund. The name “new co-op fund” gives the impression that it is a fund owned and controlled by the co-op—by the farmer shareholders who comprise and own Fonterra. The name gives that impression. In reality, however, it is anything but. In fact, it is almost the polar opposite of that. The new co-op fund is the fund into which existing Fonterra shares may be transferred, and into which farmer shareholders may sell their shares in the cooperative, which is Fonterra, so that external investors and speculators may trade in them and may receive dividends from them. External investors do not buy the shares themselves, of course. They buy the unit securities that are attached to each share, and they buy the dividend income stream that would normally be associated with the share. But the trade in the unit securities will dictate the value of all shares in the co-op, which, in turn, will affect the relative ease—or not—with which new suppliers may enter the cooperative, and may provide additional incentive for some farmers wishing to cash up their shares and exit the co-op.

This, in turn, will create further fiscal pressure on the company and its farmer shareholder owners. In either event, the Trading Among Farmers scheme will allow for the redirection of dividend stream revenue away from Fonterra’s New Zealand resident owners to offshore speculators and other foreign carpetbaggers. Indeed, the first tender of Fonterra unit securities was oversubscribed, and, already, more than 40 percent of units have gone to overseas buyers. We do not think this is a good thing. New Zealand First does not want to see Fonterra’s profits disappear overseas. We want to see them retained in New Zealand by the fine, hard-working, private business people who are the farmers who created the company.

Mr Ardern asks whether we the Parliament trust the farmers of New Zealand. Well, personally, yes I do, if they have all of the information. We do not believe that if Fonterra’s farmer shareholders had had all the relevant information to hand and sufficient time to digest the Trading Among Farmers scheme, to fully grasp and understand the potential ramifications of it, they would have voted in favour of it. New Zealand First believes that had the time given for the select committee to examine the bill not been truncated from 6 months to 4 weeks—3 weeks of which Parliament was in adjournment for—Fonterra’s shareholders would have had sufficient time, as well as all of the relevant information, much of which was provided only at the last minute, to see the scheme for what it is, and they would have voted it down. But that did not happen, and the Dairy Industry Restructuring Act with its Trading Among Farmers scheme is the result.

Fonterra claims that it has no plans to build a shareholder fund that is any larger than around 10 to 15 percent of the total number of shares in the co-op, but there is no provision in the Act to prevent the shareholder fund from growing larger than that. There is currently no protection against the size of the fund growing to any level at all, up to and including 100 percent, other than the provisions contained within Fonterra’s constitution, which can be changed by a 75 percent majority vote of shares held. This is an important distinction, because shares held and individual shareholders are not the same thing.

Mr O’Connor’s bill seeks to insert a measure of protection for Fonterra and its shareholders into legislation where currently there is none. It is a stopgap measure. It is handbrake on the drive to divest New Zealand of its dairy industry, and it would give some protection until a change of Government is able to reverse the folly that was and is the Dairy Industry Restructuring Act. New Zealand First congratulates Mr O’Connor on bringing this bill to the House. We commend it to the House, and we are proud to support it.

I rise to speak to the Dairy Industry Restructuring Amendment Bill (No 2). This is very much a bill whose time has passed. It probably ought never to have been put into the ballot. It has been drawn up after events have already overtaken it. From what I can gather from talking to members of the rural community, people are very happy with the status quo.

The way things are working out now with the 25 percent cap is something that farmers are very happy with. Why should legislators get involved in something that 10,500 dairy farmers who belong to Fonterra, and its shareholders, have already decided is a good cap at 25 percent? Let them be. What was the price today? It was $8 for milk today. They have had a huge capital injection. They are doing very well. They do not want this level of intervention. They do not need the legislation. This is not a piece of law that ever needs to be enacted. That is why National is not supporting it.

Fonterra has been able to progress with its capital restructuring proposal. It was a long time coming. It was knocked back on many occasions. There were many dairy farmers who were suspicious of change. They did not like the direction things were going in. They took a lot of persuading, actually, to arrive at the place they are at now. They have arrived at it, though—it is their decision, and they are happy with the way it is. From my perspective, as someone who does not live day to day with the dairy industry as some of my colleagues do—and they have shared their views with me—things are working very nicely. So to introduce a piece of legislation that requires a 20 percent cap when we already have a 25 percent cap, which the farmers have arrived at themselves, seems illogical, and foolish, and silly. I will not say that is typical of Labour, but, you know, one is forced to draw conclusions where one does.

There are a number of pieces of legislation that come before this House that are unnecessary and need to be knocked back. This is a bill that should probably never have been drawn out of the ballot and is not going to progress things very well. When I saw the Dairy Industry Restructuring Amendment Bill go through in July 2012, I thought it was a bill that actually put a regulatory regime in place that settled things down a lot. The dairy industry has been through a lot of restructuring. Fonterra, as New Zealand’s largest company, has managed the change, I think, very well. The level of consultation that has been done has been thorough—even, some farmers would say, exhaustive. There have been meetings all around the country to arrive at some of the developments that were enshrined in that piece of legislation that was passed a year or so ago.

When I look at this bill, as a person who lives in an urban environment, representing the North Shore as I do, where dairy farmers do not generally proliferate—they come to shop and to visit the lovely Devonport heritage areas and a bit of tourism—

💬 Ian McKelvie: They might buy a house there.

That is right—if they do well enough out of their shares, they will be able to buy a house in my electorate and come on holidays there. Would that not be fabulous? But, generally speaking, people on the North Shore look at these sorts of things and we think that if it is working well and the industry and the sector are happy with it, why on earth would you interfere? Why would you, as a legislator, come down hard and impose a cap when farmers have already arrived at their own decision?

As I look through this, look at the background to it, and consider the points—many of which have been made more eloquently than I am doing now by my colleague Ian McKelvie and others who know this stuff very well—I ask why we even bother debating this in the way that we are now. Damien, in good heart, no doubt, has put this bill into the ballot, but these things can be withdrawn without wasting Parliament’s time. Frankly, I would suggest that might be the best course of action for this, because it is a piece of legislation that is not needed by the people whom it is purporting to represent here.

The only people who think that the Dairy Industry Restructuring Amendment Bill (No 2) makes sense are in New Zealand First, which does not actually represent the farmers or the rural sector in any way at all—

💬 Hon Member: How do you know?

No, indeed you do not.

💬 Richard Prosser: It’s cows we’re talking about, Ms Barry, not marigolds.

Well, who amongst you are farmers, Mr Prosser? “Wogistan”? I do not think there is much farming going on on that particular planet. Labour is introducing legislation that is not needed. These are typical things, but they waste Parliament’s time. They waste the dairy sector’s time. This is not a piece of legislation that we would ever dream of supporting. So I sit down, not commending this bill to the House.

Thank you for the opportunity to take a call on the first reading of the Hon Damien O’Connor’s Dairy Industry Restructuring Amendment Bill (No 2). This bill requires that Fonterra must ensure that the new co-op fund established as a result of the recent Dairy Industry Restructuring Act does not comprise more than 20 percent of the total number of cooperative shares. The bill then says that if the 20 percent limit is reached, Fonterra must stop the sale of shares to the new co-op fund and proceed to reduce the proportion of shares in the new co-op fund to below the 20 percent limit within 90 days.

There is no need to change the existing Dairy Industry Restructuring Act, because it delivers a transparent and efficient dairy market. It has enabled Fonterra to progress with its capital restructuring proposal, Trading Among Farmers, while ensuring that farmers retain their current ability to freely enter and exit Fonterra at a fair price. It is up to Fonterra shareholders to decide what limit they want on the fund, and they have decided. They currently have a constitutional limit of 25 percent. This member’s bill seeks to make a minor change to a complex piece of legislation. The issue was deliberated on in the Committee stage of the Dairy Industry Restructuring Amendment Bill, which became the Act in July last year. The issue was supported only by Labour and New Zealand First—even the Greens did not support it.

The bill wants the Government to interfere in the operational running of Fonterra. We do not support this approach. The Fonterra farmers and shareholders voted for a 25 percent limit, so we should not oppose their wishes. National is proud of the success of our primary sector, and it is proud of championing our farmers and growers, so I will not be supporting this bill. Thank you.

In summary, this Dairy Industry Restructuring Amendment Bill (No 2) seeks to put into legislation what the board of Fonterra says it is committed to. I say the board should support this through its National Party, and I challenge it to commit to this, even when this bill is voted down by the National Government, and commit to what it said.

I am not surprised that the National Party is not voting for this. Some of its members do not even appreciate that the dairy industry is a product of intervention back in the 1930s. I do not have a vested interest in the dairy industry, but my grandfather came here with a delegation of farmers in the 1930s to seek legislation to put in place the Dairy Board. I am somewhat ashamed to be in the House now when I see the industry’s destruction take one more step.

Trading Among Foreigners is what it will be; indeed, of the first $500 million traded, $300 million of units was offered to Australian institutional investors. Do not let the farmers think for a moment that this was some friendly float. Corporatisation has been on the agenda for some of those key people in Fonterra for some time. The National Government has been committed since it came into power to offering opportunities to investors. That is why it is selling down State-owned enterprises. That is why it assisted with the set-up of Fonterra and its trading on the NZX. It is in the top 50. This is a significant float.

What some farmers did not realise is that the first dairy industry bill introduced into this House had as part of its objective to “strengthen New Zealand’s capital markets”. This was not about supporting and further enhancing the opportunities for dairy farmers. Trading Among Farmers was about offering opportunities for people to buy into Fonterra and take the dividends. Well, it has been achieved. As I say, for a Government that wants to flog off everything and offer opportunities to its mates, it is little wonder it does not stand up for the dairy farmers who have supported that party loyally for many, many years.

I hope dairy farmers have listened to the last two or three speeches from the National Party. They will be horrified. The redemption risk, which we were told was the reason this must occur, has been replaced by supply risk. Farmers can no longer afford to increase the supply to Fonterra, and many are opting to supply other companies—two Chinese companies in particular. Synlait and Miraka are the beneficiaries of that as well. That is the reality that that member must wake up to if he talks to some farmers. I spoke today on the phone to a farmer who has opted not to buy shares, to contract supply, and if he had the option he would have gone somewhere else.

There is some view within the farming sector that $8 per share is too high. The dividend provided is about 30c at this point. The dividend does not justify the share price. I can tell the member over there that I spoke to someone who has in-depth knowledge of the dairy industry and of the foreign investment sector. What will happen when the unit price for Fonterra goes to $12 a unit? That is the question I ask. I put it to this House that without an intervention, without the oversight of Parliament through this legislative cap, as people know, the increase in the unit price and share price will create more internal tension in the No. 1 company in this country—in the company that is the most important for our economy.

Ultimately, it will be the farmers who ask for the change in the constitution because they will be forced to. Some say those farmers are now stranded. They cannot sell their $8 wet share, because there is not a market for it at the moment because farmers do not want to buy it on the basis of milk supply. But outside investors will be prepared to pay that on the basis that they get a dividend suitable to the share price they pay. That means that the milk price will be forced down and the dividend price will go up to match the expectations of the investors. It is as sure as night follows day. The people who are smiling over there are the incompetent managers of our economy, who have not shifted the economy on to the tradable sector and who have allowed the dollar to destroy the export sector.

💬 Mr DEPUTY SPEAKER: Order! Time has expired. [Interruption] Mr O’Connor, time has expired. [Interruption] Order! Order! I have told the member his time has expired. Please sit down. Thank you.