Dairy Industry Restructuring Amendment Bill (No 3)

My mouth is clear, Madam Speaker, so yes.

💬 DEPUTY SPEAKER: I’m pleased to hear it.

I can enunciate a lot more clearly, thank you.

I move, That the Dairy Industry Restructuring Amendment Bill (No 3) be now read a second time.

This bill has followed a review of DIRA, the Dairy Industry Restructuring Act. The review was undertaken to ensure that the regulatory regime was fit for purpose and able to support a sustainable dairy industry. It was referred to the Primary Production Committee in August 2019 and was reported back to the House in March this year. I wanted to thank the members of the Primary Production Committee for their consideration of the bill. I’d also like to thank the many people who provided written and oral submissions. These submissions have been taken on board and have contributed to the bill we now have before the House.

The bill as reported back is not the same as the bill that was introduced, the primary change being that the committee recommended repealing the requirement that Fonterra accept any application to become a shareholder and supply milk, known as “open entry”.

When DIRA was passed in 2001, open entry was seen as a foundation of the regulatory regime that was established as a way to manage the risks associated with a company that had market dominance. At the time, Fonterra controlled around 96 percent of farmers’ milk production and had a near monopoly in New Zealand of domestic consumer markets. There were concerns that Fonterra’s market dominance could impact on the performance of the dairy industry and, being a dairy nation, on our economy as a whole. The bill as introduced retained the requirement for open entry but recognised that there were aspects that needed to be adapted, particularly in regard to giving Fonterra more control in how they were able to manage their investment in processing capacity. The bill, therefore, sought to include measures that provided Fonterra more business autonomy but that also didn’t allow Fonterra the right of carte blanche.

The suggested changes included, firstly, that Fonterra could refuse milk from new conversions and, secondly, that Fonterra could issue capacity constraint notices for up to three seasons rather than only one. At the time of initial drafting, this seemed to be an appropriate balance between managing the continued risks of Fonterra’s high-value market share and also managing any perceived negative impacts of continued regulation. However, this approach is no longer seen to be the best way forward.

The select committee received nearly 100 written submissions and heard many oral submissions. Open entry was the focus of many of these submissions, and there was strong support for its removal. A key concern was the cost that open entry imposes upon Fonterra. This was because the company has to maintain extra processing capacity to deal with unforeseen volumes of extra milk. This is seen to create a risk of inefficient investment in commodity processing capacity, which in turn may, firstly, divert investment away from the more innovative and potentially more value-added products; secondly, potentially leave stranded assets as milk production in New Zealand plateaus as a result of environmental limits; and, thirdly, it could possibly reduce competitiveness in the global markets on which we depend for so much of our economic wellbeing. The select committee therefore recommended that open entry, with one exception, be removed.

It is almost a year since the bill was introduced. The recent COVID-19 emergency has demonstrated the importance of New Zealand’s primary industries to us all. The primary industries kept New Zealand and much of the world fed through that period of crisis. They generated revenue when much of the economy needed to slow or to shut down. As we move from crisis to economic recovery, we need to ensure that these industries—including the dairy industry in general, and Fonterra in particular—are well placed to continue to make that contribution. We therefore support the removal of open entry in the bill as reported back. This will ensure that Fonterra can manage its milk supply and its investment for the best possible outcomes for the company, for its farmers, and for the economy as a whole.

The select committee recommended one exception to the removal of open entry. The committee considered that Fonterra should still be required by law to accept any application to become a shareholder and supply milk where the applicant was a first-time farmer. We do not intend to support this particular change to the bill. It is undoubtedly important to have succession planning in the dairy industry to ensure that new farmers can enter the industry, but I do not believe that this proposal is the best way to achieve that. The committee itself recognised that there would be difficulty in getting a definition of “first-time farmer” correct. If the definition of “first-time farmer” is too wide, there is a risk that Fonterra could be required to give open entry to corporate firms; too narrow, and there is a risk of excluding the people who are intended to benefit.

There are risks of costly legal review and diluting intended benefits to Fonterra by removing open entry. To remove these risks but still reflect the intent of the committee’s proposal, I intend to introduce a Supplementary Order Paper. This paper will remove the requirement for Fonterra to accept applications from first-time farmers and will instead give Fonterra a clear direction that it must, when considering applications, consider the ongoing viability of a dairy farm when a new applicant applies after a Fonterra farm has changed hands, and also that they have regard to the land-use opportunities available to that applicant. I consider that this strikes the right balance between giving Fonterra more control over capacity, and also manages risks to the overall future of the dairy industry, while giving farmers the opportunity to make decisions about land use for the benefit of their farm business and the economy as a whole.

I also intend to make some consequential changes to the bill as a result of removing open entry. The bill as introduced contained measures to enable Fonterra to mitigate risks while open entry remained in place. They would have allowed Fonterra discretion to accept or decline an application to become a shareholder if the application came from a new conversion or it was evident that the applicant could not meet Fonterra’s terms of supply. The bill also allowed a capacity constraint notice to be issued for three seasons rather than one to enable better management of capacity when supply volumes were uncertain. As Fonterra will have full discretion under the amended bill to accept or decline applications, these measures will not be required and can be removed from the bill.

I have outlined the key changes that have arisen since the bill was first introduced and how I propose to deal with them. I will now briefly recap other matters covered by the bill which remain largely as introduced. On the issue of raw milk regulations, the bill amends the raw milk regulations to phase out the eligibility of large export-focused processors to buy up to 50 million litres of raw milk at a regulated price. This measure was introduced in 2001 to provide some initial and limited stimulus for new, larger processors to enter the market and compete with Fonterra. However, the dairy sector has changed markedly since that time, and this measure is no longer required to help generate competition. The bill therefore reduces the current eligibility conditions. A processor that has its own supply of 30 million litres or more in a single season will no longer have an entitlement to buy raw milk from Fonterra at regulated prices.

The bill also widens the concept of what constitutes a processor’s own supply so that this provision cannot be gamed or misused. Currently, own supply only relates to raw milk purchased directly from farmers; in future, own supply will also include raw milk purchased wholesale—for example, from another processor or an intermediary.

I have noted also in the bill that the New Zealand consumer market is well served by a range of small, speciality dairy processors. There are, however, only two companies that provide nearly all of the basic household dairy staples of fresh milk and tabled cheese. Those companies are Fonterra and Goodman Fielder. When Fonterra was created, the Government recognised the risks to the interest of New Zealand consumers of having only one large company controlling the whole market for domestic consumer products. There were risks of a lack of choice, of pricing, and of supply. DIRA therefore made a specific provision for Goodman Fielder to have a supply of raw milk. The Government now considers it important to maintain the regulatory backstop for Goodman Fielder. This is not to protect the company; it’s to protect the interests of New Zealanders who want to be able to buy fresh milk and other dairy basics year-round.

This Government is moving to pass this piece of legislation to give certainty to the dairy industry, to ensure Fonterra get on and add value to the milk that they get but to ensure some protection for dairy farmers to have a competitive pressure on their own company, and to ensure that there are opportunities for new and innovative people who want to get into the dairy industry. I commend this bill to the House. Thank you.

Thank you, Madam Speaker. I just want to thank the Minister, Hon Damien O’Connor, for the way that he has engaged with the Primary Production Committee and dairy farmers throughout New Zealand on this bill, and I think you will see the support from the National Party and the Labour Party on this bill together, which shows that politics can work together in a way which gets the best result for New Zealand’s primary industries going forward.

I’d also like to thank members of our select committee that were on there and now thank them—from all parties. Now, I know New Zealand First, Labour, and National had members on that committee, and I thank them for the way that they conducted themselves in the hearings and got to a solution which we can all live with and go forward with. So thank you very much to those members involved.

I also just wanted to thank all those submitters, as the Minister did. People are very in tune with this issue in the dairy industry. It is something that has been at the forefront of many farmers’ minds for many, many years. Since the formation of Fonterra, it has been an issue that has been raised at many farmer meetings on a constant basis and has been reviewed in this Parliament on numerous occasions. I think today we get to a defining point in that review process where we, essentially, do not have the open entry requirement on Fonterra any more. There still will be an open exit requirement, and that will enable farmers to leave if they wish to and to pursue their own opportunities, as they would determine as any commercial business.

Now, as the Minister said, the open entry requirement has been taken out, and it’s quite a big change in this bill from what was initially put forward. I’d just like to thank again the Minister for the way that we were able to work together to achieve that. I know we’re on different sides of the political divide but I do think that we both have a common view for the industry, and it was good to see that we were able to put this in place in legislation here tonight, so I sincerely thank you for the work you’ve done in enabling that to happen.

This removal of the open entry has been refined with a clause that we have seen that needs a little bit of work on drafting, because it is a little bit rough and ready at the moment, but I’m sure we’ll get to that point where we’ll get it into a nice concise clause. Essentially, what the Minister had talked about is that there are two parts to that clause as it is at the moment, and they look at the ongoing viability of the farm and also the land-use sustainability of that farm. So put together, that will be what we would be wishing to see in the clause when it comes to the House in the Supplementary Order Paper (SOP). That one phrase or one test that’s got two limbs to it, you could say, would give a little bit of comfort to anybody that is an existing Fonterra supplier. That clause, as I understand it—and we have not got it in front of us in writing, apart from what I’ve got from the Minister’s office—is, effectively, only applying to Fonterra suppliers. It does not apply to non-Fonterra suppliers—so that clause will only apply to them.

Now, the Minister’s made a number of other major changes in this bill which we haven’t had the fortune of seeing in writing. It would likely be good for Labour members to talk about them more as they go through their speeches. But in essence, if I get it right, the conversion clause is now removed, Minister. So that was a clause in the legislation which, effectively—

💬 DEPUTY SPEAKER: I just remind the member—I’m sorry to interrupt, but the SOP is debated in the committee stage and can be referred to at the second reading, but, of course, it’s not before all members and it’s not on the floor to be discussed in detail.

No, and those issues—thank you, Madam Speaker—they had been raised by the Minister, and I’m just wanting to make sure that members are very much aware of them, because they are considerable departures from the existing bill. They’re not departures that we would necessarily disagree with either—it’s not in that sense at all that I’m raising it.

So the dairy conversion—if you look at clause 22 and applying section 96A, my understanding now is that will be removed, and also so that test that Fonterra could have used to prevent new supply will no longer be there, and also the three seasons review is no longer available to Fonterra in that condition either. So those changes—and there was one other, I think, the Minister indicated, that I’m sure will go through—don’t make a lot of difference in the end to the end result we’re getting to, which is that the open entry requirement will, effectively, have been removed.

When we come to why that’s important, many submitters made it very clear that they felt that Fonterra had achieved its purpose in the sense that there was enough competition out there in the market. When we look at the statistics around that competitive pressure that’s out there, in most parts of New Zealand there is that ability to choose another manufacturer rather than the existing manufacturer—for example, Fonterra—that they may have been with in the past. Now, that ability to choose gives a certain dynamic to the New Zealand industry which many farmers have taken upon themselves to be part of, but it does also present a challenge to Fonterra long term in its capacity requirements. That was the essential argument that submitters came to the committee in favour of—removing that clause—because they felt that that was too much of a commitment that Fonterra had to make in its capital contributions to be able to meet any and every supplier that may just determine to come back to Fonterra at some point in time.

In some ways the Minister has indicated that the Government is willing to support the arguments of those submitters and also, in essence, the arguments of Fonterra in that regard as well. One can only assume that that generosity that we’re seeing from the Minister must have a caveat somewhere at some point in time. He shakes his head in disbelief—

💬 Hon Damien O’Connor: Always generous.

Always generous. So the sceptic in me is saying that there must be something that the Minister has planned for the dairy industry in the future that isn’t so favourable, and we could go through a number of what those unfavourable aspects could be in regard to environmental requirements or taxation requirements, or just general taxation requirements that could be put upon farmers if this Government was re-elected, and God hope that it never is. So there must be a catch to everything, and we’re waiting to see what this Minister has planned as his catch to being able to be so generous in his decision making with Fonterra and Fonterra suppliers at this time.

But in all seriousness, this is something that farmers have been looking for for many, many years. It will give a lot of dairy farmers peace and certainty around their cooperative—a cooperative that we should acknowledge has done an amazing job for New Zealand. Not many other countries can have an organisation of that size and scale on the world market that performs to the level it does. That is good for “New Zealand Incorporated” as a whole. It’s not only good for the farmers, it’s not only good for those that are employed with the organisation, but it is also good for the country as a whole.

We also need to recognise the importance of those non-cooperative supply companies that actually have a vital role in the market as well, in providing that competitive tension to the cooperative and giving farmers a choice as well. I think we’ve got to a stage in our industry now where we do have that fine but nice balance between an international player that is competitive on the world stage on a scale basis but also we have a number of other players that are also internationally very effective in what they do and give farmers choice, but at the same time we give farmers some security around the cooperative that they’re part of. So I think that’s the balance that we all seek to achieve and it is achieved in this bill here tonight. Thank you, Madam Speaker.

Just before I call the next speaker—just for the information of the speakers who referred to the SOP, it is now on the Table.

Thank you, Madam Speaker. The Green Party is pleased to support the Dairy Industry Restructuring Amendment Bill (No 3) and pleased to take a short call on it.

New Zealand had quite a unique situation when the principal Act was developed and passed in 2001, and this bill retains the core of that Act, which ensured that it acts as an economic regulatory tool; that it provides an incentive for Fonterra to act efficiently in the absence, at the time in 2001, of performance pressure from the market; and it ensures that in this bill, we’re removing some of those regulatory pieces to just provide a more efficient, effective, and less costly regime.

Previous speakers, Mr Bennett and the Minister, have canvassed the issues around open entry and exit and the very strong support that there was in submissions for removing open entry—the fact that it has led Fonterra to really overcapitalise in terms of its stainless steel infrastructure, enabling it to process all the milk that it was required to, and that acting as a bit of a burden when it really wants to shift to more added-value production in the dairy space. So, with the Primary Production Committee’s very careful consideration of submissions and then going further with the Supplementary Order Paper (SOP) that is now tabled to actually remove that load on Fonterra to have to accept anybody who wanted to supply—and that also recognises that we now, around New Zealand, have a number of quite large companies which are also taking on milk and have their own supply.

One of the other interesting things in the bill is that it does provide for more regular reviews of the regime—every four to five years, recognising that this bill was introduced last year, that it had been preceded by quite a large degree of consultation and various reports, and also that the bill, in terms of Goodman Fielder, provides for an additional 50 million litres in terms of its entitlement to regulated milk. That’s quite important, because Goodman Fielder made it quite clear that the current cap of 250 million litres of supply had been reducing its ability to compete in the market, and it also recognises, really, that it would’ve been prohibitive in terms of being very costly for Goodman Fielder to set up its own milk supply, transport, and processing network to duplicate that that Fonterra has.

So this regulatory regime recognises Fonterra’s strengths and seeks to enhance those while also protecting domestic consumers and providing for some controls that recognise that there is no real opposition to Fonterra in terms of its size and scale. So with the changes that the select committee has made in response to submissions, and the further changes that the Minister is making by SOP in terms of removing open entry—which was something that the Green Party was very keen to see go from the outset—we are very pleased to support the bill. Thank you.

Thank you, Madam Speaker. Tonight, as we’re standing in the House discussing the Dairy Industry Restructuring Amendment Bill (No 3), I’d just like to make a mention of the dairy farmers out there who are in the various stages of starting their calving season. I just want to wish them all the best. It’s been quite a tough season for many, with droughts, and now a number of them are under water. So I just hope that the rest of the calving season goes really well. It’s been a really interesting year for farmers, and it’s surprising how often in the last few months, since COVID hit, that we all of a sudden hear about agriculture being the backbone of the economy. It’s not actually news to some of us, because that’s always been the case.

In terms of the bill, 19 years ago—actually, at the time I was on the Fonterra Shareholders’ Council—was when the Dairy Industry Restructuring Act came into place. It was very crucial at that time. We’d had so many mergers in the industry. What it did was it allowed the two major companies in New Zealand to form one, which gave them a 96 percent monopoly. So there was certainly some grounded fear that this was the only way to bring it together, to have some rules and some mechanisms and some protections in place to ensure that the monopoly didn’t abuse its power. If we look today, it’s down to about 80 to 81 percent, and in some parts of the country it’s certainly met the requirements that were in the Dairy Industry Restructuring Act initially that would unleash it.

This bill, and the second reading here tonight, is part of that process of unleashing, because Fonterra needs to be in a position to make some really good commercial decisions. I find that as a cooperative, when it makes bad decisions, everybody jumps on it, but when it’s trying to make good decisions, it’s restricted by some of the rules that currently sit in the Dairy Industry Restructuring Act. We’ve had people referring tonight about the stainless steel and about the building of plants and all of that sort of stuff. When you think that a cooperative the size that it is is restricted from turning away milk supply and it can’t make its own commercial decisions, then it really is restricting the company in making good decisions.

The other thing that’s a bit hard about this is that a lot of the smaller companies that are coming into New Zealand and are setting up in competition with Fonterra have a level of foreign ownership with them, and quite a level of foreign ownership with them. The National Party is not concerned about foreign investment per se, but, actually, you have to have it on a level playing field, and the problem is the Dairy Industry Restructuring Act hasn’t been providing that level playing field.

When we look at this bill, it talks about, in my notes here, a start and stop, supplying to Fonterra. I would turn that around and say, actually, it was stop and start. The thing that got to most farmers was that you could leave Fonterra if you wished but they had to take you back any time that you wish to come back. Those who were left holding the baby, so to speak, and those loyal shareholders who stayed in the company were quite miffed about that whole open entry and exit clause. They’re not worried about the exit clause. If people choose to go, then that’s a personal freedom and a choice. But, if a shareholder decides they’re going to leave Fonterra and they always know that there’s the safety net of the door being open on the way back in, they’re going to take much more freer choices about how they come and go.

I also would note that it wasn’t only the Dairy Industry Restructuring Act that did force Fonterra. It was under those constraints, but for a long period of time we did hear a lot of, you know, “We want more milk, more milk, more milk”. That’s going back in the early stages. There’s a lot more questions being asked about that now in terms of the environmental part of it.

The one thing that I’m not sure about—and we had lots of discussions about this as a committee, and I will say I wasn’t permanently on the Primary Production Committee at this stage but I did actually sit in a few times—was around the Government members sitting on the milk pricing panel. I know that there’s so many checks and balances in that milk pricing panel that I’m not sure that that’s overly useful or effective, but it’s not something that’s going to drive us towards voting against the bill.

One thing that I’m disappointed about, standing here tonight—because I did sit in the committee for quite a period of time, and we went round and round trying to get a piece in this bill that supported new entrants and gave an intent or gave a construct for Fonterra not to be able to turn away those brand new entrants to the industry. It was quite a difficult thing, and we sent the bill back to see if we could create some wording around that intent or some sort of clause in here. I’m kind of disappointed that at this point of time, in the second reading, I’d still like to see something a bit more concrete that really supports the new entrants into this industry.

I also see, as part of this bill, this bill gives Fonterra the right to cancel a farmer’s milk supply on animal welfare and environmental grounds. This does make practical sense, and I see no reason why this bill shouldn’t do this, but where I do get concerned is that this needs to actually be operationally fit for purpose within Fonterra. I think right now the early response service that Fonterra operates in part needs a complete review, because Fonterra currently have terms and conditions of supply and they don’t always use that in a way that protects animal welfare. So I think we need to have some really good discussions around how this will operationally work, because I cannot see any practical reason why we wouldn’t do it, other than it needs to be up and running and running correctly and properly so it services all farmers and it services the animal welfare and the environment at the same time.

So I remember speaking on this bill last time, and I do remember James Shaw pointing out that, actually, the force in this bill to take all milk was one of those things that could potentially have a detrimental effect on the environment. We largely agreed on that point, because it’s really good to see that there’s no force in here to be able to take conversions from places where it doesn’t make sense. Of course, this is all backed up as well by the ability for farmers to get resource consents anyway. So if Fonterra was willing to take a farm but then a farmer couldn’t get a resource consent around water, effluent, and all of those sorts of conditions, then they wouldn’t be able to operate a dairy farm in the first place.

So despite the reduced market share in Fonterra, it still is a pretty significant power, and I don’t think that we should ever back away or be frightened of and ashamed of the fact that 80 percent of the cooperative of New Zealand dairy farmers want to supply that cooperative. Our competitors are out in the world, and we have to stick together and we have to have some sort of global scale. I think this bill is a really good move in just taking some of the tensions away around that open entry. But long may Fonterra continue to be a really solid, large, main player in New Zealand—something that we can all be proud of. It’s been a real pleasure to speak on the second reading of this bill tonight, and I look forward to the committee stage and the third reading later on. Thank you.

I also rise to support, on behalf of New Zealand First, this Dairy Industry Restructuring Amendment Bill (No 3). It has been, as referenced earlier, a bill that has been well traversed through the select committee, and I’ll come to that as we assess this through the second reading.

But, of course, the Dairy Industry Restructuring Act, or DIRA, was absolutely imperative in allowing the formation of Fonterra at the time. As has been referenced earlier, 96 percent to 97 percent of the supply of New Zealand milk went through Fonterra in 2001 when it was formed, essentially replacing the old single-desk dairy board and the processing companies sitting underneath that, that had amalgamated to the point where they were down to two. So this is enabling legislation, but it was time for a tidy up.

But Fonterra is incredibly important to New Zealand. It is a behemoth by New Zealand corporate standards, but it is our behemoth. It is owned by 10,000 or so New Zealand dairy farmer shareholders, who control that company. But not only just the processing in New Zealand—they own a lot of offshore assets in a value chain well beyond these borders that allow them to capture the profit from further through the market and bring it back to New Zealand for the betterment of our economy. We absolutely owe a debt of gratitude for the far-sighted vision of our industry leaders in the dairy industry that set Fonterra up. For all its warts and all—and it has had its troubles in recent times, which it’s now working its way steadily out of, but it’s important to note that it is our company or it is owned by the 10,000 New Zealand dairy farmers who have an absolutely intrinsic vested interest in bringing and making this company the best it can be for the wider New Zealand economy.

I note that other industries that have this sort of collegial approach—the kiwifruit industry, for example, through Zespri—have also thrived through this time. If we look at the wool industry that Minister O’Connor is busy trying to assist to resurrect at the moment, we have lost complete control of those value chains and fragmented industry, where trying to pick up those parts is incredibly difficult. So it’s important that we respect the fact that the dairy industry, and particularly the farmers of Fonterra, have maintained their structure, maintained their wider vision, and haven’t sold out to corporate and short termism. This bill will assist in many ways.

Of course, the major change to this, as has been traversed, is the repeal or almost total repeal of the open entry provision that meant Fonterra was compelled to take any milk offered to it, which—at the time, with 97 percent supply, we needed pro-competition; we needed other companies to come in and sharpen Fonterra’s pencil, make sure that it was competing effectively and wasn’t just a big, lazy monopoly, and to the most part they’ve done that. There’s been some great companies get off the ground, some—to my chagrin and New Zealand First’s chagrin, probably—with foreign ownership involved, but also the likes of Open Country Dairy, that are New Zealand-owned through the Talley’s, have grown and kept Fonterra honest.

It’s got to the point now with Fonterra down around the 80 percent mark, which was always where it was intended that these provisions would drop away within the Dairy Industry Restructuring Act, that now we’re at that point that we take the opportunity to do just that and free Fonterra from the shackles of having to take all milk offered to it, because they then become the default provider of stainless steel. So the Fonterra farmers are, essentially, subsidising, through having to run their business at a less efficient level because they’re holding overcapacity of stainless steel, which in a manufacturing business is hugely inefficient and a genuine cost on that business, so that other farmers could wash in and out of the co-op as they so wished, which is not fair. It certainly was the view of the select committee that the time had come for that provision to be repealed, or almost totally repealed.

In terms of the exception, we did work quite hard, and I share Barbara Kuriger’s frustration in the sense that we did manage to beat out a provision for first farmers to still have access, because we felt that it was incredibly important that new farmers entering the industry are encouraged and have a pathway into Fonterra ownership, shareholding ownership, and supply, and often the expense of buying shares up front is prohibitive. There is the MyMilk scheme with Fonterra that they do. They are actively encouraging, but we wanted to make sure that those first-time farmers did have that right to entry where possible. I respect the fact the Minister has taken that away, looked at it, hasn’t been totally satisfied with that, and, you know, through some wider consultation, has come back with a tidier version, which I think gets to the same ends in a slightly different and tighter way.

I think in terms of the competitors and the select committee process, here we are in the second reading talking about the select committee. Whilst the farmers, particularly the Fonterra farmers and Fonterra itself, obviously, were keen for open entry to go, some of the domestic competitors were not so keen. But I think the time has come. They’ve got their businesses up and running. They need to be competing on commercial terms. They need to have a value proposition to talk to farmers, to say that if you’re going to change companies to us, there is some certainty for them that that is a value proposition that is worth their while making that move. They shouldn’t necessarily need the default position of being able to say, “Well, if it doesn’t work out, you can go back to Fonterra.” I don’t think that is a sustainable proposition, and the select committee certainly felt that the competition had matured enough where we didn’t need that provision to be left.

The phase out of regulated milk over 50 million litres a year, I think, over five years, from memory, down to 30 million litres, and once a company exceeds regulated milk for that one year, they then become ineligible—that is an elegant solution. There was some talk, I think, early on of getting rid of regulated milk altogether. But we did hear through the select committee process—and I can’t remember; someone will remind me—that small Bay of Plenty dairy company that came and made an incredibly persuasive submission around how important that regulated milk was for smaller companies that may grow over time but they’re not big, foreign, overseas corporates coming in to try to take a big chunk of the market or big domestic players. They made a compelling case why there should be a threshold. We agreed with the 30 million litres that was originally proposed, and that survived the select committee process.

I guess the other thing—there are a few other bits and pieces. I think the regulated milk for domestic consumption, the Goodman Fielder provision—I’ve been quite uncomfortable with that. Having a, once again, foreign-owned company that’s got regulated access to milk is not something that sits comfortably with myself or, potentially, New Zealand First. But it is, once again, an elegant solution. Throwing it round, there does not appear to be a more effective way of doing that. You need a competitor of some scale that’s prepared to invest in stainless steel and supply chains to allow the domestic market to be competitive. We know for the—well, this is incredibly important legislation for dairy farmers. For the greater population, the price of milk at their local supermarket is their overriding interest in this bill, and they want to know there’s plenty of competition. So we did traverse issues around Goodman Fielder, but we could not, and certainly I could not, come up with anything to put to the select committee that was a better solution to what we’ve got in front of us. So I will look forward to the Supplementary Order Paper in the committee of the whole House. But we welcome the certainty that this legislation will now bring to the commercial decisions made within the dairy industry. Thank you, Madam Speaker.

I’m once again living proof that if you hang around here long enough, you go round the full circle. But I just want to comment, before I get into the real facts of this bill, on the Minister of Agriculture, who made a very eloquent speech from the other side of the House. I remember him on the last two iterations of this bill standing about where I am haranguing the useless Government, the terrible cooperative, and the fact that Westland Milk Products was the hero of New Zealand’s dairy industry. Well, we know where Westland’s gone! But none the less I just wanted to say before I start that I am a cooperative supporter, and I think that Fonterra has served New Zealand extraordinarily well. I don’t, however, think that this legislation has at all times served either New Zealand or Fonterra extraordinarily well, and some of the changes that were made to this bill in the course of the reintroduction of the Dairy Industry Restructuring Amendment Bill (No 3) will, in fact, improve a lot of those things for Fonterra and for the industry as a whole.

It’s a kind of unique situation we’ve been in, because we’ve had a piece of legislation that probably in my lifetime was the second-most contentious piece of farmer politics that dominated the rural scene. The most contentious of those was the wool acquisition debate of the late 1960s, and most people in this House won’t remember that. If that debate had succeeded, of course, we would have had a wool industry that we could have perhaps talked about with a bit more pride today. Of course, I heard the Minister just not long ago come to the select committee and say that he couldn’t make the wool industry any worse. Well, in fact, he’s halved the price of wool since he’s been the Minister. I don’t think that’s necessarily his fault, but that’s what’s happened to the price of wool.

I think this is probably the third iteration of this piece of legislation that I’ve seen come into this House, and the situation’s changed dramatically in that time, in that Fonterra at the time—and Mark Patterson made this point—was something like 96 percent of the dairy industry. The dairy industry, of course, at that time was a third the size it is now. Now, you can argue whether that’s good, bad, or indifferent for New Zealand, but it sure does produce an awful lot of income for New Zealand: some $20 billion annually, which is hugely important to New Zealand’s wellbeing and, in fact, to our employment, as well. It is a very big industry.

Some of that growth in the industry has been caused by the terms of the original Dairy Industry Restructuring Act (DIRA), and I don’t necessarily think that was—some of those terms at the time might have been made with the best intentions, but, in fact, the result they created was not in the best interests of New Zealand, or the dairy farmers, or the dairy industry—or Fonterra, for that matter. But that’s one of the great challenges that we face in this place, because the moment we interfere in business through legislation, we put distortions into the market place that almost always create problems that, in some cases, become insurmountable. Not very long ago we had the Racing Industry Bill go through this House. This House has been interfering in that industry for some years now without success, and I think it’s a great lesson to us that we should be very careful before we interfere in what, effectively, is—I wouldn’t say it’s a free market, because it’s not, but it’s certainly a market-driven situation. That creates a whole lot of problems.

I think that this bill does fix some of the challenges that I think we’ve had with Fonterra and with DIRA for some time. It does enable some parts of the industry to get on with their business without political interference in them. I want to comment on a couple of other issues which are particularly relevant to my electorate, and one is the milk given to Goodman Fielder, who operate in my part of the world from a factory adjacent to the Longburn dairy factory, which, of course was stolen from Tui by Kiwi, we always think, in the Manawatū. As an old Tui shareholder, we felt we got ripped off by the Taranaki, but that’s not unusual.

💬 Barbara Kuriger: Oh, never!

I think so, Barbara! I think so. We got ripped off by the Taranaki. At the time it was quite a bitter debate, actually, and in fact this whole debate leading up to the formation of DIRA in 2001 was quite a bitter debate, in many ways—not bitter, I wouldn’t say, in that form, but there were certainly some dominant characters who led those debates in those days. It does create some interesting issues.

Another point I wanted to make about the dairy industry, and, in fact, farming in New Zealand in general, is that we have some extraordinarily innovative companies that have been driven by the sector, and they’ll continue to be driven, providing we have a healthy industry. The provision of DIRA is critical to that healthy industry. One or two of them are based in Palmerston North, in fact, and, of course, the Gallagher Group, who are the doyen of electric fence manufacturers—and security system manufacturers, petrol pumps, and many other things—are based out of Hamilton but also have a large base in Marton, in the Rangitīkei electorate. Levno, the modern company—he’d like me thinking it’s modern—that does the milk measuring and milk meters and things like that, comes all the way out of Foxton—in fact, Nathan Guy’s electorate at the moment, although I’d like to claim it at times. And, of course, the Allflex tags were born and bred in Palmerston North, taken over by a French company.

I guess New Zealand First wouldn’t like this much, but many of our companies have gone that way, and, of course, the agricultural sector does have a whole lot of those kind of companies that are very innovative, create world-leading products, and produce stuff that the world wants. Of course, Fonterra is one of those, because I think we’re around 3 or 4 percent of world milk production but we’re something like 90 percent of the world export—or 90 percent of our milk is exported, in one form or another. So we create products in New Zealand. Fonterra’s been absolutely the leader in this field, because they have a base, again in the Rangitīkei electorate, through their science and research centre on the Massey University side of the Manawatū river, where many of their world-leading products have been created. So whatever we think of our industry, and however we devise legislation to ensure that it’s equitable and fair for everyone, it’s very important that we have these very strong entities like Fonterra, because they enable New Zealand—and their competitors, actually—to produce products that are absolutely the best in the world.

If we didn’t have Fonterra sitting there, I doubt the competition would exist in New Zealand to ensure there are other companies. There are some very good ones: Tātua, Synlait, Open Country Dairy, to mention three. There are many more who are doing a great job for the New Zealand farming industry, and they’re doing that job as a result of this piece of legislation that was initially introduced to create exactly that. So I think in some ways the initial legislation has created an environment that we absolutely wanted to create in New Zealand, and that was what was envisaged by those people who designed the legislation initially. However, it has also created some distortions, and those are some issues that we as a Parliament and as a country and as farmers have had to deal with, and had to deal with at some cost to the industry, as well. We’ll have to continue to deal with that as we go along.

I was not part of the Primary Production Committee, and, as I said, you go the full circle in this place. I was part of the select committee that dealt with the last two iterations of this bill, but not this one, and I have listened to the Minister on numerous occasions espousing all sorts of views on farming. It’s amazing how once you become the Minister you get captured by the system and you do what you’re told, and I’m most impressed to think someone from the West Coast would end up having to do what they’re told. He seems to have got there. I won’t take any more time of the House, but I do think this bill does achieve a lot of what the industry has been asking for. My two dairy farming colleagues, not quite with the same vehemence that Shane Ardern would have shown at some stage in this House—almost; Bennett’s nearly as bad as him—have explained the intricacies of this bill, as did the Minister, and certainly Mark Patterson did as well. So I commend the bill to the House and wish it luck as it goes through.

I always enjoy listening to that speaker who’s just resumed his seat, Ian McKelvie, because he obviously has a great knowledge about this particular area, and what he has in knowledge, I completely lack—it’s not my area of expertise. However, I am aware that the Dairy Industry Restructuring Act, in its original iteration, set up Fonterra, and now what we are attempting to do is to ensure that we can enhance the dairy industry through some changes made in this particular piece of legislation. So rather than hold the matter up, I commend the bill to the House.

Madam Speaker, thank you very much for the opportunity to make a few comments on the Dairy Industry Restructuring Amendment Bill (No 3). As other speakers, particularly the very learned Ian McKelvie has just said—he wasn’t on the Primary Production Committee, I wasn’t on the Primary Production Committee, but I thought it was worthwhile, in making my contribution, just to think of my own involvement with the dairy industry over the time that I’ve been a member of Parliament.

In setting the scene for that, I think it’s important for newer members of Parliament to actually understand the history of the dairy industry in New Zealand. It was a case whereby there were hundreds, if not thousands, of small cooperatives. My own area, where I’m fortunate enough to farm now, Banks Peninsula, had a dairy co-op in just about every bay: Le Bons Bay, Pigeon Bay, Okains Bay, Little Akaloa. There’s one small one still existing today in Barrys Bay. But that was the nature of how the dairy industry started in New Zealand. We then went through a period of quite significant amalgamation of all these cooperatives because of, just, scale of economics. By the time that I came into this House, we, effectively, had two major competitive dairy co-ops in this country: the New Zealand Dairy Group based in the Waikato, and the Kiwi dairy cooperative based in Taranaki. The interesting thing about that—and we’re talking now about the mid-1990s—is Canterbury, which is now a powerhouse of the dairy industry in New Zealand, wasn’t even really on the scene at that stage. The dairy transformation that’s occurred in Canterbury has occurred subsequent, really, to the enactment of the very first Dairy Industry Restructuring Act.

I became a junior Minister and Associate Minister in 1998 and was privileged then to be part of the discussions as these two major cooperatives came before the then National Government and talked about trying to amalgamate Kiwi and New Zealand Dairy Group to create a company which at that stage was unnamed but later became known as Fonterra. Of course, the Government was then challenged with making sure that we established some competition to allow Fonterra to establish, and yet allow the industry to develop, to mature for other players to come into the industry. I recall long, long discussions with some of those dairy stalwarts at the time: John Storey, Sir Dryden Spring, John Roadley; the Prime Minister, Jim Bolger, was heavily involved; Ministers like Bill Birch and particularly the senior agriculture Minister at the time, the Hon John Luxton.

Of course, the election came along in 1999. The job at that stage had been well progressed but not completed. The then Labour Government picked up that legislation, continued the work, put it through the select committee—from memory, in the year 2000—and finally, we passed the legislation in 2001, establishing the Dairy Industry Restructuring Act, allowing Fonterra to form and also establishing mechanisms by which other innovative companies could come into the industry.

I talk with some pride about our own company, Synlait, in Canterbury, which was established over the time that I’ve been a member of Parliament—now a very significant contributor to the dairy industry of New Zealand and a very, very significant contributor to the economy of Canterbury. I want to acknowledge in that the leadership given by John Penno, who was significantly involved as we progressed—as Synlait developed and has now become a major player to the New Zealand dairy industry.

We now have got the Dairy Industry Restructuring Amendment Bill (No 3) before us. We’ve obviously therefore had two others. I was involved in one of them and I assume—I haven’t had the chance to research this, but I’m sure it was the dairy industry restructuring bill No. 1. At the time, I was the Minister of Agriculture or the Minister for Primary Industries, and I conclude—a lot of the discussion tonight has been about the continuing open entry, open exit. If I have one minor regret, I suspect we might well have got it wrong then when we at that stage said that Fonterra had to continue to accept every possible supplier. I say that because as I regularly drive through the Mackenzie Basin, there we see dairy farms which I feel should not be in the Mackenzie Basin. That is a particularly fragile part of New Zealand, a beautiful environment, but fragility is known to those who are familiar with it.

I suspect that may be an inadequacy of the regional plan, may be an inaccuracy of the district plan, that the Mackenzie District Council has allowed dairying to develop into the Mackenzie Basin. But one thing that did force that to happen was the fact that Fonterra had no choice whatsoever—that if a farmer wanted to establish, having got through the resource consent process, then Fonterra had no choice but to accept the milk from that place. So I think in hindsight, maybe we’ve got to it, I think, tonight, where we’re now saying that Fonterra has the ability on occasions to say “We will not accept milk from a particular supplier, be it an environmental reason, be it a animal welfare reason.”, and I wonder, in honesty, whether we shouldn’t have got to that space earlier.

My final point is I wonder whether, in time—it won’t be in my time, obviously, in this House, but whether in time—we’ll have a “Dairy Industry Restructuring Amendment Bill (No 4)”, or whether, in actual fact, we can now say this industry has matured to the stage when it no longer needs this governing legislation. I personally think we are at that stage. I think Fonterra has been a remarkable company. It is New Zealand’s biggest company. The actions and the performance of that company affect the livelihood of every New Zealander. We have seen also maturity right across the industry with a number of other significant players providing that competitive edge, providing choices for dairy farmers in most parts of New Zealand. I think before too much longer, this House should think about whether we even need to have governing legislation governing the structure of the New Zealand dairy industry.

The following call’s a split call. I call Rino Tirikatene.

Tēnā koe, Madam Speaker. I wholeheartedly support this bill. I want to acknowledge the members of the Primary Production Committee, of which I am one, for the extensive examination we gave to this bill, and Minister O’Connor, who has picked up through his Supplementary Order Paper 547 some of the requested refinements.

This is a fantastic bill. It is all about helping to support our vitally important dairy industry that is maturing and that is growing. We want to ensure that the legislation provides some certainty but also allows us some competitive tension for Fonterra, but also doesn’t unduly hamper Fonterra as well in terms of its rights to have to collect milk.

So I think we’ve reached a really well-balanced place with this bill and I’m looking forward to seeing in its passage the continuation of the evolution of our dairy industry, which is such an important industry for Aotearoa. Kia ora.

Thank you, Madam Speaker. A pleasure to stand in support of the Dairy Industry Restructuring Amendment Bill (No 3) at the second reading. I’d also like to commend the members of the Primary Production Committee. It’s pleasing to see the changes that have been made to ensure that we could reach an agreed position on moving forward as a country. The reality is we are facing incredible economic pressures and, as in the past and so into the future, we will need to trade our way back into prosperity. We will need to take active measures to ensure that we retain our competitive edge in our core industries.

Dairy is one of those pillars upon which our economy is sustained. We are a country of 5 million feeding a population of 40 million through our dairy exports. This is a great source of satisfaction, that we are able to do our bit for the world prosperity. It is a great example of taking our competitive advantage, our ability to produce the cheapest feed for our dairy herds in the world, and turn it into outcomes that see ordinary New Zealanders employed and able to make good for their families.

Make no mistake, ordinary New Zealand families will need the dairy industry to be operating at maximum capacity, selling our dairy products into the world, as part of our COVID-19 economic recovery. When this bill first came before us, we did not support it as it lacked the competitive features that would make the Dairy Industry Restructuring Amendment Bill a fit-for-purpose piece of legislation. I acknowledge the collaborative approach of the committee that it has taken as to enable us to support this bill in the interests of all New Zealanders.

The removal of open entry requirements will allow Fonterra to take a more competitive stance in the market. As National, we support competition in the knowledge that it generally brings out the best in business. Competition I see as the catalyst for innovation and excellence. The fact that other dairy entities have entered the market and through good practice have reduced Fonterra’s market share shows the market works. To enable Fonterra to be able to make a more competitive stance, the removal of the open entry requirements is critical. This will allow Fonterra to better consider each application against their own quality supply requirements. That is a good thing. Equally, the open exit provisions will enable farmers to move between the best providers as they see fit. This will ensure Fonterra and its internal competitors maintain attractive conditions to enable real farmer choice.

That said, and to ensure new farmers have a fair chance to sell their product, we support the retention of open entry. We need to ensure an intergenerational focus on farming in New Zealand and work to keep New Zealanders on our farms and innovating. We have been world leaders in dairy production, in part because of this intergenerational view.

The proposed new clause 20B will replace section 73 of the Dairy Industry Restructuring Act, which requires Fonterra to accept applications to supply milk. This clause needs to be discussed and further refined, taking into account sector views, and so I’m pleased to see the committee will do so. I note the committee is taking the unusual step of recommending a placeholder provision in our proposed new section 73(1). The committee expects the House to amend new section 73(1) to reflect exceptions through removal of open entry provisions.

A strong, competitive Fonterra and independent dairy processing business is vital to get us through this upcoming economic downturn that we face. I support this bill, Madam Speaker.

Thank you, Madam Speaker. New Zealand’s success in dealing with COVID-19 positions us well for an export-led recovery. As other speakers have said, dairy is one of our main exports. This is a bill that responds to a lot of what the dairy industry has been advocating for. It amends, as others have said, the 2001 Dairy Industry Restructuring Act to remove regulatory requirements that aren’t needed any longer and it gives Fonterra a little bit more flexibility to manage its operations.

This is a really good bill. It keeps us moving in the right direction, and I commend it to the House.

Thank you, Madam Speaker. It is a pleasure to speak on the Dairy Industry Restructuring Amendment Bill (No 3). Most of the important clauses have been covered by other speakers, and I don’t intend to go over those. But, as the honourable member Ian McKelvie mentioned earlier in his speech how important it is when you are regulating industries to bear in mind that all regulations have an impact on the market in some way, I want to focus on clause 23, which amends section 106 of the Dairy Industry Restructuring Act. It allows or gives the cooperative the ability to have price differentials for practices such as environmental practices, sustainability practices, labour practices, etc., and they are to reward those people following that and of course, by default, to actually, effectively, punish those that don’t.

I think the key point in this is that in a market where you have the main player—that is, Fonterra—unable to do that when its competitors can and where we have seen those competitors having much more reactive sustainability and environmental practices in their pricing structures, it was something that Fonterra was unable to do. So it’s a great thing for me to see this in this bill.

If Fonterra wasn’t able to act as nimbly as its competitors in that field when it’s got 80 percent of the market, I think that was a real handbrake on the dairy industry’s ability to really be a world leader in the market. When you’re selling different products into discerning markets around the world, it is all about all of those practices, and, unfortunately, there are fantastic farmers doing fantastically well out there with their environmental practices, but the world and the industry is judged by its worst players, not by its best. The revision in this bill gives Fonterra a tool to act and to encourage that good behaviour that we all desperately need. So, with that, I commend the bill to the House.

I’m pleased to stand and add my support to this bill, following on from the contributions of others around the House. I’m really delighted that our Minister, the Hon Damien O’Connor, has been able to develop a piece of legislation that not only assists the dairy industry to move forward positively but has developed such a degree of consensus around this piece of reform that is captured in this legislation.

It’s a good example of the way that this Government works; we don’t kick problems down the road, we focus on how we can make progress on behalf of all New Zealanders—

💬 Simeon Brown: Tell us about light rail. How did that go?

—and I think it’s absolutely wonderful that we’ve been able to achieve that for the dairy industry.

The member opposite doesn’t need to worry about light rail, but he must be absolutely delighted about the money that is going into the Eastern Busway serving his electorate.

None the less, I commend this bill to the House. Once again, I thank the Minister and the select committee for the great work that they’ve done on it.

Bill read a second time.