Dairy Industry Restructuring Amendment Bill (No 2)

Thank you, Mr Chairman, and as we move to the committee stage can I just say that I hope we see a Minister regularly on his feet answering the questions that I’m going to raise, because that will certainly mean that we get more value out of this inquiry.

Let me start with the three questions I need to ask. The first question is, why the rush—why are we here in urgency? The second question I want to ask is, noting Rino Tirikatene’s comments—“[this] review has … nothing to do with [the] bill.”, were the words he said—I want to know the relationship between this bill and a bill introduced in the latter stages of the National-led Government. And the final question I want Minister O’Connor to answer is, I want an assurance around the procedures that he’s followed to make sure that we’re putting into place legislation that will work, that is accurate, because, of course, we’re not seeing the luxury of the select committee having a look at it.

So let me deal with the first one: why the rush? I’ve listened to the contributions from both sides of the House. They’ve certainly been more meaningful and had far more content from this side of the House than from the other side, but accepting that point—

💬 Hon Tracey Martin: Ha, ha!

I note the Hon Tracey Martin immediately agrees with that, because she’s been shrieking for the last hour or so—been away for a long lunch, no doubt. But I don’t understand the reason for the rush, because as I read the legislation there is a requirement that these competition safeguards around Fonterra’s share will breach on 31 May this year, and here we are in urgency on 13 February. So I see no reason at all why normal procedure couldn’t have been followed, with this legislation introduced and sent to the select committee. It’s about a 70-word bill, so we could have had a fairly truncated process at the select committee, but that way 4,000 South Island dairy farmers would have had a chance to make a contribution and to scrutinise the legislation. So my first question, and I hope the Minister will take the opportunity of rising to his feet, is why the rush? Why can’t it go before a select committee?

My second question, then, was picking up on the very concrete and eloquent contribution from Rino Tirikatene. He talked about the fact that we’re acknowledging there’s a review. We’re in the dark as to the terms of reference of that review, but there has to be, I consider, a relationship between this bill and the one introduced by the former Minister the Hon Nathan Guy. I know that in that particular piece of legislation the issue about open entry and exit was going to be dealt with. It’s not an easy issue. I accept it’s a complicated issue, and I think the fact that the Minister’s shirked his responsibility by simply taking it out of the bill and saying that it will form part of the review still to be announced and still to be progressed—we need to know tonight the relationship between this bill and the former bill.

And then the final point I want to make is around this legislation being rushed through in urgency. I’ve acknowledged many times it’s about 70 words. It should be accurate, but this is complicated stuff that we’re dealing with. And I know the Minister in the chair, Damien O’Connor, was well educated at a Christchurch school. I know that he will have studied each word in detail, but I want to be absolutely assured.

We know we’ve seen embarrassing situations from both Governments in the time that I’ve been in this House, where Governments have chosen to rush stuff through with urgency, absolutely confident that the work’s been done and the wording from the Parliamentary Counsel Office has been adequately addressed and, lo and behold, within a few weeks of it being passed we find out it hasn’t been done accurately. So I just want the Minister—and if he’d rise to his feet and answer those three simple questions, I think we could curtail this committee stage and maybe minimise it for two or three hours, knowing that the bill hasn’t had the opportunity to be scrutinised by a select committee. So I’d be very, very grateful to see the Minister immediately on his feet, in cooperation.

Look, thank you very much, Mr Chairman. I’m very happy to answer the Rt Hon David Carter’s questions. If I can start with the first one, why the rush? On 31 May, the legislation that governs Fonterra for South Islanders will, effectively, become defunct. It won’t operate in the way that farmers and all the processors and everyone have expected and have utilised over the last 10 years or so. So there is some urgency, and, in fact, it is the same urgency that was there when, from 2015, the trigger point for that legislation was met. It was 2015; it’s now 2018. Who was in Government?

💬 Hon Tracey Martin: National Party!

Oh! It was indeed the National Party and the National Minister. Now, to be fair to the Minister, he then conducted a review. The review was conducted, and then a piece of legislation was drafted up, and, actually, there was plenty of time from the drafting of the legislation before the election to pass that. And if the National Government had been determined to pass it and protect the dairy industry—if it was its true friend—it would’ve done so. But the reason the National Minister and Government didn’t want to was they didn’t want to have a scrap among their friends. And the bottom line is that within the dairy industry and the farming sector, there’s still a lot of division about some of the core provisions.

In fact, the open entry, open exit provision was a debate between Fonterra and Federated Farmers. They announced—I’m sure at the encouragement of the Minister—a compromise situation that, effectively, said, “Well, Feds, we do kind of support open entry and open exit.”, but they didn’t, really. It was a temporary fix to what is a major component of a piece of legislation. And because of that debate, the Minister, to be fair to his colleagues, didn’t want to have his constituency—the dairy industry—up in arms and arguing with the Government in the lead-up to the election. That’s why they didn’t do anything about this.

I understand, and the Government understands, the need to pass this prior to 31 May. So we had a look at the situation, and so, in moving into the new year, had a decision to make. We could have taken the existing or the proposed piece of legislation, put it into the select committee, and then had an extensive—because it is an important issue—submission process and run out of time before the deadline. So my decision was to separate out the rollover provisions that protect the dairy industry and leave in place the existing legislation. It is a minor, technical amendment, actually, in truth. All it does is take out a couple of provisions that would trigger provisions that, effectively, did away with the legislation, the Dairy Industry Restructuring Act. It’s taken them out and said that things can continue—a minor technical amendment.

So the urgency is necessary, but the review is an opportunity. And let me get on to the second point—the question. Because the bill is necessary, and we can pass that now, the opportunity then is to go back and open up for wider discussion and honest discussion, with plenty of time to look at the key issues that drive the dairy industry, and the requirements around competition, and fair access for consumer products, and the issues of protecting what is our single biggest and best company, bar none. New Zealanders still own this. It’s a cooperative, and all the points raised in the House by passionate farmers, for the most part, are right.

Can I just go back, though, because in talking about the review—because it won’t be easy; because, actually, I have to challenge the person who questioned me on these issues. In a similar way to the dilemma the Labour Government faces now, back in 1999, when we came into Government, in fact the National Party was caught up in an internal debate between those in the caucus and the Government that wanted one company, like Fonterra, and those that wanted open competition for the dairy industry.

💬 Rt Hon David Carter: Oh, rubbish!

Absolutely—absolutely true. And so, once again, the National Government, back in 1999, sat on its hands and did nothing. And so it was up to the incoming Labour Government to pick up the mantle and to proceed and to put in place legislation that gave us Fonterra, and I’m proud of being part of a Labour Government that did that. Once again, we’ve come into Government with a similar kind of dilemma, and we will not be rushed into processing a piece of legislation that was a compromise piece of legislation by the National Government, expecting us to just roll it on through. No. We want the best outcome for the dairy industry.

And the issues raised by my coalition colleagues are legitimate issues. Some of the issues raised by the Opposition are legitimate. And so we will—

💬 Hon Ruth Dyson: Name one. Name one.

A few. I’m being very, very generous. That is, they have said that the dairy industry is important. I agree with that. They have said that Fonterra is a very important part of our economy. I accept that and agree with that, as well. But there’s a lot of other things, actually, that somewhat contradict one another.

I’m confident that the coalition partners in the Labour-led Government have the best interest of Fonterra and the dairy industry and the dairy farmers at heart—absolutely. And the things that are coming at us internationally—like the ones of artificial milk, like the ones of increasing environmental scrutiny, of increasing scrutiny around our labour laws and provisions in the industry—are things that our customers are absolutely demanding, and be it blockchain or traceability or whatever, we will have to meet the highest standards internationally to continue to sell high-value products into those best markets.

The review is an opportunity—and I acknowledge that the National Party, I think, deep down, see the wisdom in this—and we should embrace the opportunity and go through in a very careful way, with the right people, and come up with the right outcome. And it won’t be a bunch of Tory lackeys, which is what that Government did every time it had a review. It will be people who have an understanding of the future, of future needs.

💬 Hon Nathan Guy: Who? Who?

Well, we haven’t decided. If the member has some people he thinks should be put forward, I’d welcome him nominating some. But I’ll tell you what: they’ll be on the committee because of their wisdom and vision, not because of their political alliances.

Can I say, to the third point around urgency, there are—

💬 Rt Hon David Carter: That was the first point, actually.

That’s right. There have been people making submissions on the dairy industry review. I accept that, and I’m guessing that the same people will make submissions to this, and there may be some more, because the industry has moved forward quite a long way in 12 months, in fact—quite a long way. So there are now issues and perspectives that I think have changed since they last made submissions, and I welcome their submissions back into this process. They don’t want to make submissions two or three times. This urgency legislation is a technical bill to just roll things over and allow those people to put their time and effort into and focus on to a substantive submission that will come in to the substantive review.

So I think I’ve answered all three questions. I may not answer every question quite so substantively, because I think therein lies—and respecting the questions asked by the member here, the Rt Hon David Carter; because he comes from a good school, he’s asked smart questions. Can I say that it’s fair enough that I’ve answered him and, I hope, assured the House and the dairy industry that the coalition Government, in proceeding with this legislation and a review, has at heart the absolute best long-term interests of Fonterra, dairy farmers, and the dairy industry and the New Zealand economy that does depend upon it so much.

Thank you, Mr Chair. When we look at Part 1 of the bill, it repeals the provisions that, basically, relate to the South Island provision in the legislation that was triggered in 2015, as a number of speakers have said, because the South Island milk flow was over 20 percent that went to non-Fonterra factories, so the 80 per cent threshold was met and, therefore, that triggered the ability for the Dairy Industry Restructuring Act regulations not to apply in the South Island.

Now, this bill, in Part 1, talks about how it intends to enable those provisions to still apply even though the legislation has triggered itself in the original Dairy Industry Restructuring Act. Now, the original Act the Labour Party has taken a lot of credit for tonight, saying that they did that a number of years ago. That is true and we acknowledge that, but at that time, they set a threshold for the South Island. That is a threshold that has been met, and now they are trying to change the threshold that they set earlier. If they were so right in what they did many years ago, why do they need to change it again now? That is something I’d like the Minister to answer as to why they actually need to change that threshold now. If that is because they don’t believe there is enough competition in the South Island, then I need the Minister to say that, because some of his colleagues have said to that effect, and their words were: “wildly monopolistic player” that “needs discipline”. The member from Christchurch, the new member, said that about Fonterra, that it was a “wildly monopolistic player” and needed discipline. So that side of the House, obviously, has it in for Fonterra. That was that member’s exact words. He saw this legislation and the review that will accompany it as a direct attempt to attack Fonterra. If you ever needed proof of that, just ask that member who said those comments on the Labour side.

Now, there are some parts of the legislation that have been removed from the original Act that was taken to this House some time ago, and one of those was the ability to take milk from new conversions. That was something that had been agreed upon between the parties involved, and I want to hear from the Minister why he decided that clause had to be removed from this bill. What was so offensive to the current Minister that he felt that he couldn’t have that in this bill now? That clause, effectively, enabled Fonterra to say no to new conversions that would increase their requirement to have stainless steel provision at a time when they didn’t actually need to do it, and it would actually mean that you would achieve the opposite goal.

What we’ve heard from the Labour, Green and New Zealand First members tonight is they’re talking about trying to build a value-add industry. That is the whole mantra that we have heard tonight. The provision of extra stainless steel for anybody that decides they want to do a new conversion and join Fonterra means that Fonterra actually has to provide a lot more infrastructure, especially in a fast-growing area like the South Island, than it actually needs for the production of its product. So, naturally, that means that that extra infrastructure goes into very commodity-type products like milk powder, rather than the value-add products that the Minister has said he wants to see happen in the industry.

So I want to know from the Minister why he took that clause out, because that clause actually would include an incentive for Fonterra to actually work on the value-add and not provide more provision for stainless steel just as a backup. And if you want to get that in the terminology of Fonterra shareholders, for example, if you look at Fonterra Shareholders’ Council chairman Duncan Coull, he has said this about open entry, “Open entry leaves Fonterra and its farmers as guarantors for the industry, underwriting risk for competitors, forcing us to potentially build more capacity than needed and making it harder for us to invest in the highest returning manufacturing assets.” Those are the direct words of the Fonterra Shareholders’ Council chair. That open-entry policy, which the Minister has taken out of this bill, directly conflicts with his desire to see a more value-added industry. The problem Fonterra finds is that because it has to be open to any potential milk supply, especially in the South, then it has to provide a lot more plant, and that plant is traditionally commodity-based rather than the value-added that we all in this House seek to see from the industry. So I just can’t understand why the Minister has taken that clause out, when it actually and effectively achieves the purpose he seeks to see in the industry going forward. There’s no reason why he would take it out. It’s not something that needs to be debated in this House. He’s made it very clear to the House that that is his goal, and there would be no opposition from this side of House to that goal being achieved either, because everybody wants to see a higher value-add to Fonterra in its distribution of the products that it makes it. Fonterra itself wants that as well, and Fonterra has made those kinds of commitments in its investments in recent years where it can, but it is also hamstrung by that need to provide that stainless steel and to provide that capacity because of that open-entry clause.

In the South Island there is significant competition. The original threshold that was set of the 80 percent has been met and there is competition beyond that point. There are new companies starting up in that area all the time. There’s a new company starting in the North Island. For example, if you look at Ōtorohanga, it recently had an announcement of a new company there. There is a very competitive milk market out there and Fonterra is being hamstrung by this legislation. The Minister had an opportunity to do two or three things that were in the legislation that the previous Minister had put forward that would enable us to achieve some of those value-added processes, and he has declined to do that. So I want the Minister to explain why he is taking that out, why he doesn’t believe that leaving that in there would assist in the value-add process that he has come to this House to seek.

If we look at Fonterra itself, their response to the Commerce Commission’s review said, “The requirement to accept all milk acts as a disincentive to Fonterra to invest in the right kind of assets and undermines the industry’s ability to grow value-add business and maximise returns to NZ farmers, as we are all committed to do.” Why then does the Minister take that clause out? If he genuinely wanted to see a value-add industry, the industry itself has met the threshold test that was set to it a number of years ago. The industry itself has said that it is willing to invest in that kind of infrastructure, and yet this Minister feels that he can make an executive decision that is bigger than the industry.

That’s the danger that we will find in this review. We’ve heard it from the people in the Opposition in this Chamber here tonight. They all believe that they know better for Fonterra and for New Zealand farmers than what Fonterra itself knows. They all say that. The Greens are saying, “We want water quality. We want to look at environmental land use.” The Labour Party is looking at exactly the same. They want labour rights. They’re looking at the contracting provisions of Fonterra in regard to supplies. Those parties are dictating to New Zealand’s business the very decisions that a business makes. I don’t see any of them being qualified to be the CEO of Fonterra. I don’t see any of them being qualified to be elected to the board of Fonterra. All I see is a group of Labour - Green - New Zealand First politicians that want to go after that industry, and this is their mechanism to do it.

💬 Hon Dr David Clark: What a load of rubbish!

That member over there says “load of rubbish”. This is true. This is what is happening in this room here tonight, because otherwise you would just pass the legislation as it is, otherwise there’s no point in going into urgency, otherwise there’s no point in going to a review. Why do you want to do the review? It is because it has to be a wider purpose. [Bell rung]

Thank you, Mr Chair. I’m going to take a small contribution to the Minister’s explanation in terms of answering some of the questions from the Opposition side around the urgency.

💬 Rt Hon David Carter: Great, because the Minister didn’t.

Well, look, it’s very clear that the Minister explained the urgency. You know, we’ve got a deadline for 31 May. I also know that the former Minister talked about going to select committee, and, let’s be honest, select committee is about a six-week process and I think the Minister in the chair, the Minister of Agriculture, has made it really clear that the reason why we’re having urgency is because we have got farmers waiting for clarity, which unfortunately that side of the House didn’t provide them when they were in power. So here we have a Minister doing the right thing by bringing this bill in for urgency.

But there is a question I did want to ask the Minister and that’s, I guess, in response to some of the comments made from across the Chamber, and that’s in relation to this: if we weren’t presenting this piece of legislation in the House, what would be the actual risk to the Southland farmers, for example? I also want to make comment that you’ve prefaced your introduction of this bill, Minister, by the fact that this very wide-ranging review is going to take place. You’ve made comments, I’ve heard in this House, around the ever-changing international markets around dairy products, around technology, around products’ origin, and, of course, around food safety, and taking a strategic review of the dairy industry I think is the right thing to do. That’s what I’ve heard you say in this House, Minister.

What I haven’t heard from those on that side of the Chamber is the risk and the long-term vision of our dairy sector going forward. I’ve heard a lot of complaints around the rush; you’ve more than ably explained that, Minister. But, I guess, I again look to you in terms of the leadership that you’re providing in the urgency of this bill, which, coupled with the strategic review that you have promised that you’re going to undertake, for me talks about the sort of long-range vision that you have for the dairy industry. Here, for this particular bill, we’re talking for South Island farmers, but clearly players like Fonterra will be looking very closely under your leadership as we look more strategically at the dairy industry, and I think that’s exactly what you’ve promised in this House, and I commend you for that.

So my questions were a couple of things, Minister. What is the risk to us not proceeding with this bill under urgency? What’s the risk particularly to the South Island farmers that are looking for the leadership and clarity that you’re providing through this bill? The second one is about the commitment to the wide-ranging review that you’re going to undertake and the risk to the nation and the dairy industry if you don’t take that strategic review. Those are two questions that I’m really keen to hear from you. A third one, if I may, in the time that’s provided is in support of my colleague Rino Tirikatene and to acknowledge the very strong Māori interests in dairy across the nation, and to ensure that obviously under your leadership, Minister, we will ensure that emerging farmers, particularly in the Māori agri-business sector around dairy farmers, will also be part and parcel of your review. I do hope that you take that—

💬 Hon Nathan Guy: Yeah, Miraka.

Well, Miraka’s one over in the Taupō area, and you know they’re doing some really innovative things there. But if we’re talking about the wider dairy industry, Minister, I do encourage us to take that wider, innovative, and diverse view on our industry, the dairy industry, as we go forward.

So, Minister, there are three questions there: the risk to us of not presenting this bill in the way we’re doing it; the wider risk to the industry if we’re not taking a review as you promised; and, thirdly, ensuring that Māori dairy farmers’ perspectives are also taken into consideration as we undertake this review. Kia ora.

I move, That the committee report progress.

Leave is sought for that purpose. Is there any objection?

💬 Hon Chris Hipkins: No, it’s a vote. I’ve moved it.

💬 Hon David Bennett: Mr Chair, I seek the call.

CHAIRPERSON (Adrian Rurawhe): Can you wait a minute? I am seeking advice on this. My mistake—there is a vote. Leave is—

💬 Hon David Bennett: I raise a point of order, Mr Chairperson. There hasn’t been enough time to debate this part of the bill. The member sought leave for a vote. I stood up and sought leave to make a call before you had made any decision. There had been no vote accepted. I seek leave for another call on this part. We’ve had only a very small number of calls. Until that motion is accepted, it is still open for somebody to seek the call.

CHAIRPERSON (Adrian Rurawhe): No, my ruling is that there will be a vote on this.

I raise a point of order, Mr Chairperson. There’s another issue that I think Mr Chairman needs to seriously consider. A call was made to report progress. There’s been some discussion, and I note now that it’s 4 minutes to 10. By convention in this House, when we’re in the committee stage we always then report progress to Mr Speaker at 5 minutes to 10, so I think we’ve gone beyond the time to do so.

I thank the member for his contribution, but, as members have been calling out on the other side, we are in urgency and the vote will be put.

The Government has indicated that it does not wish to continue urgency, so the Dairy Industry Restructuring Amendment Bill (No 2) is set down for further consideration in committee next sitting day.

The House adjourned at 9.59 p.m.