Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill

on behalf of the Minister of Agriculture: I present a legislative statement on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill.

ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can found on the Parliament website.

I move, That the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill be now read a first time.

I nominate the Primary Production Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 10 November 2022 and that the committee have authority to meet at any time while the House is sitting, except during oral questions, during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington area, despite Standing Orders 193, 195, and 196.

Fonterra is New Zealand’s largest dairy processor. It is a New Zealand - owned cooperative with a membership of around 10,000 farmers. The dairy sector, of which Fonterra is part, will this year earn around $22.1 billion in export receipts. It is therefore essential that Fonterra has the right settings to perform well. The Dairy Industry Restructuring Act, or DIRA, was passed in 2001 to allow for the formation of Fonterra. The DIRA included safeguards to ensure that Fonterra had the incentives to perform well. This was at a time when it accounted for about 90 percent of the farm-gate milk market. The safeguards have over time included certain disciplines around capital structure. Fonterra and its shareholders are free to determine the cooperative’s capital structure. The DIRA has aimed to ensure that whatever its form, the capital structure did not adversely affect contestability for farmers’ milk supply.

Last year, Fonterra’s farmer shareholders voted in favour of a new capital structure to replace the current trading among farmers structure. The new capital structure will make it easier for farmers to become shareholders in Fonterra and supply milk. Fonterra will be better placed to attract and retain milk supply in an environment where milk production is forecast to plateau or decline. This will ensure Fonterra can make optimum use of its investment in dairy processing, continue to compete strongly in global markets, and remain a mainstay of rural New Zealand.

The Government believes it is important for Fonterra to be able to make changes to respond to a changing environment and to be able to proceed with certainty. As part of its future capital structure Fonterra wants to partially de-link its unit fund from the farmers’ shareholders market. The linkage is a key part of the current trading among farmers capital structure and it is embedded in the DIRA. If the DIRA is not amended, Fonterra will face ongoing legal uncertainty. While the Government is prepared to support the change that Fonterra and its farmers want, we are also aware that the new capital structure carries potential risk—risk for farmers and the performance of the wider dairy sector, and also to Fonterra’s own performance over the longer term.

Fonterra will find it easier to attract and retain milk supply. That is a positive. But locking in farmers through new shareholding arrangements could have downsides if, for example, it stopped farmers supporting other potentially more innovative processes or stopped farmers moving from dairy into other land sustainable land uses. Fonterra needs a certain amount of competitive pressure from other dairy processors or from competing land-use. Competitive pressure ensures Fonterra performs at its very best. That performance means not only being the best at what it does now but also being an innovator and a driver of long-term sustainable dairying. So the bill amends some existing DIRA settings to help manage risk and support ongoing performance. These amendments relate to increased transparency, robust governance, and the independence of price-setting processes.

First, the bill improves the transparency and robustness of the governance, operation, and Commerce Commission oversight of Fonterra’s base milk pricing arrangements. A transparent, independent, and robust base milk price - setting process is important. Fonterra’s size in the market for farmers’ milk means it, essentially, sets the farm-gate milk price for the whole dairy industry. To attract and retain farmers’ milk supply, other processors need to exceed Fonterra’s farm-gate milk price, forcing efficiencies across the whole industry. The DIRA therefore includes provisions that govern the calculation of the base milk price, including monitoring by the Commerce Commission.

The bill has two features to improve transparency and independence of the governance and operation of the milk price - setting arrangements. The bill increases the number of ministerial nominees to Fonterra’s milk price panel from one to two, and it requires the chair of Fonterra’s milk price panel to be independent of Fonterra. Fonterra will also need the Minister’s approval of a candidate before it appoints a chair. Fonterra will also have to regularly change the milk price group. The milk price group is the external body contracted to administer the base milk price calculation. This is to ensure that the milk price manual remains fully independent from Fonterra’s board and management over time.

Secondly, the bill strengthens the Commerce Commission’s oversight of the base milk price - setting regime. It gives the Commerce Commission the ability to direct Fonterra on the rules in its milk price manual and the inputs, assumptions, and processes that Fonterra uses in the base milk price calculation. This is a change from the current settings. At the moment, the commission can comment, but Fonterra need not take account of those comments.

This amendment will enable the regulatory regime to address issues that have a material impact on the base milk price. It responds to longstanding concerns about the effectiveness of the base milk price - setting regulatory regime. It is worth noting that the Commerce Commission’s new powers of direction do not mean that the commission is setting the price that farmers get paid for their milk; the farm-gate milk price is Fonterra’s decision, and nothing in this bill affects that.

The bill will also support liquidity in the trade of Fonterra shares in its restricted farmer-only market. It improves transparency in relation to Fonterra’s performance.

Fonterra is moving to a farmer-only market for its shares. Because the market will be restricted, farmers could find it difficult to trade shares readily, to find a buyer in a timely manner or without undue financial cost. This could limit farmers’ ability to exit from Fonterra, either to supply other processors or consider alternative land-use. It’s great if farmers want to be shareholders in Fonterra, but they also need to be able to exercise choice, including the choice to exit.

The bill supports liquidity in two ways: by (1) requiring a market marker to be designated under NZX rules to support ongoing liquidity in the restricted farmers-only market; and (2) requiring Fonterra to make an independent market analysis of its performance, which is accessible to farmers and unit holders. The market marker will facilitate the buying and selling of shares where there is low demand amongst farmers. This will enable entry and exit in a timely manner. The publication of market analysis by Fonterra will help ensure that farmers, shareholders, prospective farmer shareholders, unit holders, and prospective unit holders remain well-informed about Fonterra’s performance to assist in participating in the shareholders market and related investment decisions.

The Dairy Industry Restructuring Act has evolved since 2001, when it was first passed to enable the establishment of Fonterra, and the amendments introduced by this bill continue that evolution. This bill recognises that Fonterra exists in a dynamic and changing environment. The cooperative and the legislation need to respond effectively.

Fonterra, and the dairy sector as a whole, are facing increasing challenges: environmental and resource limits, changes in social licence, volatile global markets, and changing consumer preferences. The bill is a measured response to changing circumstances. It enables Fonterra to move forward with confidence in an increasingly challenging commercial environment, while recognising the need for some continuing safeguards to encourage the performance of Fonterra and the wider dairy sector. I commend the bill to the House.

The question is that the motion be agreed to.

Thank you, Mr Speaker. First up on speaking to this Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill, I just want to congratulate Fonterra today on coming out with a final farm-gate milk price for the season just passed of $9.30. That is a record payout for Fonterra, and I’m sure that it will be much appreciated by the farmers of New Zealand but also by the economy of New Zealand. And before people start talking about us—you know, National just being about the economy—there’s a couple of other little stats that I’d actually like to give you in terms of what else Fonterra’s doing on behalf of farmers: 50 million kick-start breakfasts served, 12 million dairy serves donated to New Zealand’s food network, $13.7 billion is to the economy—which, we were talking about the economy a moment ago—6,200 farm environment plans delivered. And that’s really significant because what is really relevant here is that since 2018, 11.2 percent downward on greenhouse gas emissions for scope one and two. So that’s particularly relevant that farmers are not only being successful in terms of productivity and profitability but also making progress in the environmental space, which is excellent.

I also wanted to comment on this because Fonterra farmers have voted in support of this piece of legislation, and recently there was a comment out by the Parliamentary Commissioner for the Environment, and the Parliamentary Commissioner does some really good work, but I’m a little confused about this particular piece of work that says “Fonterra restructure law risks pushing up emissions and diminishing freshwater quality, environmental commissioner warns.” Part of the commentary was that the Government appears to be unmoved by those concerns. I have to say, in the National caucus supporting this piece of legislation, we don’t share the Parliamentary Commissioner for the Environment’s direct concerns in relation to this, because, actually, I think that if you went back 15 years ago and we were talking about the cost of the share price dropping, people would’ve seen that as an opportunity for more cows and more cows. But I’ve spent a lot of time talking to people lately about how we’ve reached pretty much “peak cow” in New Zealand—there’s a lot of catchments that are “cowed-out” if you like—and we do recognise now that probably 15 years ago going back that there wasn’t such a recognition of the environmental constraints.

So even though the share price will be lower, the ability to get resource consents will actually build on the cow numbers—with the environmental compliance that’s happening right now, it’s very unlikely this is going to happen.

And I also think the one good thing about this legislation that we tried to get in the last piece—we went round and round as a Primary Production Committee trying to find a way to get new shareholders into Fonterra, i.e., sharemilkers, contract milkers, farm lessors, associated shareholders, and because we were trying to define it quite tightly; there’s so many different types of equity forms out there that it was quite difficult to do. So when the Parliamentary Commissioner says doing so will be making it easier for new farmers to join the co-op, this is not, in our view, new farmers—as in more farms and more cows—it is actually new farmers who currently don’t have the ability to be part of the co-op.

I think if we’re looking after the succession plan of the future of Fonterra and New Zealand farmers by letting younger farmers and sharemilkers and contract milkers participate, that has to be a good thing. So the changes that are being proposed here have Fonterra adopting a more flexible shareholding structure, allowing farmers to hold fewer shares, and widening the pool, as I said, to let some newer farmers in.

Fonterra’s competitors don’t require their farmers to purchase shares to supply milk, and Fonterra’s concern is that it will become a smaller, less efficient business, that we’d continue to lose milk supply without this amendment, and that’s a fair comment because it is the cooperative which—you know, a lot of our businesses in New Zealand that have been extremely successful are cooperatives and have a shareholding base, and this one is no exception.

So when we went into the Dairy Industry Restructuring Act in the early 2000s, Fonterra was about 95 percent of the milk supply, or somewhere round there. It’s currently 79 percent, and what happened 20 years ago was really a lot of these rules were put around Fonterra to make sure that competition evolved, and, actually, competition has evolved to quite a substantial proportion over the last few years, and we wouldn’t want to weaken our large cooperative in terms of constraining it too much.

So there’s just a couple of concerns that the National caucus has with this piece of legislation, and we are supporting it, but we are concerned about increasing the number of ministerial nominees to Fonterra’s milk price panel from one to two. And the other piece of that is requiring an independent chair, appointed with the approval of the Minister. Now, when I spoke to the Minister about this, I said, “That’s three people”. The Minister made the case that it may be three people or it may be two people because one of those two ministerial nominees may well be a nominee and the chair, so that could be two or three. On this side of the House, we think that’s a bit much. We don’t really see that there’s been any evidence that Fonterra has tried to spin the wheels in any case in any of this, and everything’s been done open and upfront—in fact, I was on the shareholders’ council, back 20 years ago, when a lot of this milk pricing was worked out, and it’s worked out in a way that’s pretty logical and pretty fair.

The other one that we are not supportive of is to give the Commerce Commission power to issue binding directions to Fonterra following reviews. We see this as another piece in addition to the extra directors—will be just more and more obligations on Fonterra. And sometimes I think Governments create—or they go looking for answers for problems that don’t actually exist, and we don’t see why that extra step needs to be made. That’s something that we’ll be having a good conversation about when we go to select committee, because our cooperative does quite well and we don’t feel like it needs any more Government restrictions than we’ve already got.

So I just want to say, over the last month, six weeks, couple of months—depending on which part of the country people are in—we’ve had farmers out there who have been calving their cows, getting their calves fed, going through their farm duties in what has been some exceptionally bad weather in some parts of the country; it hasn’t been too bad where our farms are situated. And if people said to me, “How’s the weather been and how are the farms going?”, I’d say well, in all honesty, at times I would have to say, “A bit wet”, but “a bit wet” is in proportion to those people in Northland, Canterbury, East Coast—you know, look at Nelson Tasman, how it was hit.

And so I just want to give a shout-out to the farmers. As I say, a record payout today—but the thing is that farmers are now doing this environmentally in a much more friendly way than ever, creating a great lot of value for this country. We are the most efficient climate-emitter farmers in the world, and the goal is that if we continue to do the right things and continue to put the right steps in place, we will continue to be the most efficient farmers in the world.

So we support the piece of legislation, we look forward to the select committee process—we will be contesting a couple of these points and see where we get to, see if we can ask the Government if they can change their mind on those two points. But I commend this bill to the House, because we think it’s a very worthwhile piece of legislation. Thank you.

Thank you, Madam Speaker. It’s a pleasure to rise and take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. As the chair of the Primary Production Committee, which will be looking over and progressing this bill, it makes it even more of a pleasure, and I’m looking forward to hearing from the public, from farmers themselves, from companies, from dairy co-ops, etc., about this piece of legislation. It is a short turn-round with the report-back date being set for 10 November, and I know that, as far as dairy farming goes, they are pretty much coming to or nearly finished carving. So I’m hoping there’ll be just a little bit of time there—enough time for them to be able to submit to this before they get too heavily into artificial insemination, which I know some of them probably are already undertaking at this stage.

I have to say the weather for us in the electorate of Rangitata, which I represent, hasn’t been too bad; it’s been reasonably kind. We have had a pretty good time, as far as weather goes anyway, for calving. I also want to acknowledge and join with my colleague Barbara Kuriger in congratulating Fonterra and farmers out there for this record payout. It just goes to show dairy farmers out there are a success story for our country and they contribute so much to our economy. In fact, as well as other primary producers, they have carried our economy through COVID and allowed us to be able to recover the way that we have.

I wanted to pick up on a couple of points that the previous speaker mentioned, and one of them was around the Parliamentary Commissioner for the Environment and the concerns that they raised in their report around the potential for this to increase emissions and impact on our waterways. I have to say I do agree with Barbara Kuriger on this matter that I don’t see that it necessarily means that because more farmers will be able to become shareholders that that means more dairy farms popping up, as Barbara Kuriger said. I think that the country realises and the farming community realises that they probably have reached “peak cow” and are looking at ways, whilst having reached “peak cow”, that they can just continue to improve practices, of which we have some of the best in the world as far as dairying goes.

I also like the fact that this does allow our younger farmers, our sharemilkers, to become shareholders—something that potentially they couldn’t have been able to do prior—and I think it’s really important, because often with different farming types it’s difficult to get into farming itself. If you think about sheep and arable, it’s often a family farm, and I think dairying is one of the only ways—albeit very hard—to work your way up through and into that farm ownership. Becoming a shareholder was something that was not able to be obtained and so I think that this piece of legislation will certainly look to allow that, and I don’t see that it will increase or assume that new dairy farms will pop up because of this change in this piece of legislation.

What we have here with this piece of legislation is the fact that Fonterra is a massive success story for our country. It’s been a fantastic success story as far as it’s a cooperative company, and the fact that it is 100 percent a New Zealand - owned cooperative is something that we should all be very, very proud of. I think it came about because of the Dairy Industry Restructuring Act—the DIRA, as it’s referred to—in 2001 which allowed this, the Fonterra, to be set up.

We know that, as I’ve said before, and various other speakers have said before, our dairy farmers are actually world-leading and the Fonterra co-op has been part of that—an essential part of that, actually. We heard before that the farmers providing milk to Fonterra—it’s around 79 percent of the milk that’s produced in New Zealand that goes through Fonterra, so it is a key part of our dairy industry here. We provide dairy exports to 130 countries, and 95 percent of all dairy milk produced in New Zealand is supported with expected revenue of approximately $19.1 billion a year. So it is worth a huge amount to our economy, and it also employs around 49,000 people within the industry throughout the country.

Given that DIRA and Fonterra were formed in around about 2001, times change, things change, practices change, and everything evolves. I think that it’s only right that we continue to look at and evolve this piece of legislation as is needed given that practices change and also the fact that we are facing changes within our climate and our environment. So it just makes sense that we continue to look at this piece of legislation and improve it.

There’s a couple of things that this piece of legislation does, but it does improve transparency and independence of the governance and operation of milk price settings in New Zealand. We heard before that Fonterra has the shareholders within its cooperative but other ones—not like Fonterra but others—they don’t make their farmers and suppliers become shareholders. So the issue is that with Fonterra collecting the majority of milk across the country, they pretty much almost set the price for milk, or the farm-gate price for milk. That has been a concern for other milk companies in order to remain competitive, and so I think what this piece of legislation does—and I know that the member opposite, Barbara Kuriger, has expressed concern around the way that perhaps the panels might be set up in so far as having ministerial nominees for the Milk Price Panel being increased from one to two. But I do think that it’s important because the price that Fonterra sets does impact across the sector, and we do need to make sure that we do have a level and an even playing field when it comes to the setting of the milk price.

So it’s important that there is some oversight, transparency for other agencies, and things like that, which gives comfort, I suppose, to suppliers, to farmers, to know that others don’t have to raise the milk prices in order to compete with Fonterra in order to keep their shareholders. I just think that with this bill, with the transparency that it will provide, it will certainly help keep that playing field somewhat even. I mean, I know that last year, the Fonterra shareholders voted in favour—I think 85.16 percent voted in favour—of their restructure out of 82.65 percent of eligible votes being cast, and so I think that’s a really clear indication that Fonterra itself were keen on having this restructure.

I think that it will be a really interesting process when we hear from—I’m hoping—many submitters. It is a short submission time frame, but I am looking forward to hearing from the submitters in that we might be able to address some of the concerns that Barbara Kuriger has raised, and perhaps there might be others that are raised throughout this this afternoon in these speeches.

So I think it’ll be a very interesting process, and I am looking forward to it. I think the select committee will be a pretty robust exercise hearing these submissions, but I do think we work as collegially as we can when it comes to our primary sector because it’s such an important one. I commend this bill to the House.

Thank you, Madam Speaker. Pleasure to take a call on this bill in its first reading here before the House today. I would like to start by also acknowledging the results announced by Fonterra today, a record milk price of $9.30 per kilogram of milk solids. That is a fantastic result. But, actually, I think it’s really important also alongside that to note that whilst that’s a record, we’re also seeing costs at record high levels—

💬 Mark Cameron: Going through the roof.

—as well. Going through the roof, Mr Cameron; absolutely right. At a time when farmers are facing significant pressure on that front, having a record milk price, thankfully, helps to offset some of that cost—you look at it, whether it’s fertiliser, electricity, fuel, interest rates of course, labour, if they can get labour, of course, as well. There’s a whole range of areas where farmers are getting hit with increased costs. So it’s important that we do recognise that aspect, for anyone listening who doesn’t necessarily understand the farming system. A record milk price doesn’t just mean lots more money for farmers or lots more profit, I should say; it actually means that, you know, things are OK. They’re able to get through because we have seen that massive cost increase.

I also just want to highlight the fact that our food and fibre sector is absolutely vital for the future prosperity of New Zealand’s economy. We need to keep that front and centre as well. You know, there have been some challenges within that space and a number of pieces of proposed legislation, a lot of uncertainty for the industry that’s making it really tough, quite aside from the financial aspects, to be in the food and fibre sector as well. So I do want to acknowledge everyone involved in that sector, particularly the dairy farmers, on the basis of today’s piece of legislation. I thank them for their hard work and, for most of them, coming out the back end of calving, hopefully a bit of weight starting to come off the shoulders.

But just on the report back—and I do want to pick up on that, because it’s something that the previous speaker Jo Luxton commented on. We are seeing an incredibly short report-back period being proposed by this Government. Now, they are doing this time and time again on legislation across a whole range of different areas where it’s totally unacceptable. Why are they not prepared to give the industry sufficient time to consult in detail? It reeks of an arrogant Government that thinks they know best and aren’t interested in hearing the opinions of anyone else in the industries that are actually being impacted by the legislation brought forward. Seven weeks is ridiculously short, at a time when, yes, they’re coming out the back of calving, but, actually, they’ll be going into mating in only a few weeks’ time. There’s a lot of pressure on-farm. They’re not going to necessarily have the time, and we risk missing out on valuable opinions or valuable insights because the Government has put in a very short time frame. I don’t know why they’ve chosen that time frame. Perhaps we’ll hear more about that, and we may end up debating this point as well, because I think it is worth a discussion as to why we are shortening it so much in this regard as well.

On top of that, I do just want to, I guess, pick up on the fact that there are some concerns that have been raised. We’re supporting this bill at its first reading, but there are some concerns that have been raised by some players within the industry around some aspects of this piece of legislation. Now, as we heard from the previous speaker, 85 percent of Fonterra shareholders approved or supported the restructure at their vote last December. So that’s a very strong mandate—75 percent was the threshold, not 50 percent, so 75 percent. They got 85 percent—very strong mandate—and they want change, so this is looking to enact that. That’s all well and good, and on a number of aspects I absolutely support that, making it easier for sharemilkers or contract milkers to be able to be Fonterra suppliers in terms of reducing the requirement to purchase Fonterra shares. That comes at a pretty high capital cost for those businesses that are frequently lacking in capital. You know, they are usually young businesses, not particularly well advanced in their life cycle, and therefore don’t have significant equity behind them. So having to fork out what has been, up until now, a very high dollar price, but also backing every kilogram of milksolids with a share has put a significant capital cost on those farmers.

And, obviously, then, from the banking perspective, you look at debt-to-equity ratios, the security aspect in behind that as well.

💬 Simon Watts: How are those interest rates?

And, of course, with rising interest rates, Mr Watts, that’s becoming challenging.

So these are all aspects that support the argument for changing this, to enable better access for those younger farmers, typically, to be able to get into Fonterra, to be part of Fonterra if they so choose.

I do just want to pick up on one other comment that was made around some of the other competitors not having the same model, so the barrier to entry of buying shares not being there or that may be the case—not in every instance; in some instances—but, actually, that comes down to different entity structures. Right, so in this model, it’s a cooperative. Suppliers are looking to buy shares. That gives them, then, more input and more say in how that business is run. When you look at some of the other models out there from dairy companies, they are different. They might be privately owned companies and therefore their suppliers have less control or less input into the management of that entity.

So, of course, those structures are quite different and reflect potentially different values or priorities for why people may choose to support one company over the other. It’s not just about whether or not they can afford to buy shares in Fonterra or choosing to be part of Fonterra on the basis of that; there are those other considerations that they may consider more important in selling the price point—i.e., around their ability to have more say in the nature of that business or indeed aligning more with the values of one particular business over another. A whole range of factors that influence a decision to supply.

One of the other aspects that I just wanted to touch on—I think it’s probably worth mentioning what that looks like. So what’s being proposed here is that instead of having to back every share or every kilogram of milksolid with a share, that’s cutting back to one-third. So it’s a significant reduction, and on that basis, a significant capital cost reduction as well. And having that fund size then capped at 10 percent of total shareholding allows for some flexibility.

There’s some concern around, well, what happens to the trading of shares between farmers in that model? The report, I think, was commissioned by Open Country Dairy, and suggested that there could be a significant devaluation in the share value of existing Fonterra shareholders—because, presumably, if you move into a model that has more access or more reliance on trading, then you start looking at discounted cash flows from a valuation perspective. And therefore, looking at that model would suggest that still further reduction in the current share price could be experienced by those shareholders. So that, again, impacts on their equity positions and potentially bank security positions as well.

So these are all things that will need to be considered throughout the select committee process, which I will reiterate is exceedingly short—far too short and should be extended, in my view, to allow for a fulsome consideration of a wide range of views on this topic.

But then also some concern around whether we might actually, on the flip side, also see an increase in land value. We heard comments from the Parliamentary Commissioner for the Environment that maybe this could lead to an increase in livestock numbers. I’m not sure that I support that. As we’ve heard from previous two speakers, my take is that, actually, we have, over a period of time now, shifted to a position where most farmers are more aware of value over volume. It has taken some time to get to that position, but if we look at the journey of farming, how we farm now is not how we farmed 10, 20, or 50 years ago and it won’t be how we farm 10, 20, or 50 years into the future. And we continue to evolve and adapt, so we need to be mindful of that in this context as well.

So there may be some unintended consequences. And, again, that’s where we need a robust select committee process to make sure we understand the potential implications of that. But within this legislation, we’ve seen a Government—this Government never misses an opportunity to take more control—

💬 Hon Member: Right.

Right, and they’ve done that in this case by saying, “Hey, right, we’re going to move from just appointing one member on the Milk Price Panel to two. And we want to make sure that we decide who the independent chair is going to be. And we’re going to give the Commerce Commission the ability to direct Fonterra to act on any recommendations.” So a typical “Government knows best” approach as we’ve seen time and time again, which aligns also with the arrogance of experience with their shortened select committee process too.

So I’m looking forward to debating this in select committee. I do sit on the Primary Production Committee and I look forward to hearing a range of views from submitters on what this bill may or may not result in for them.

But ultimately, on the face of it, the Fonterra shareholders are in favour of it. There’s some good aspects to it, but I’m very keen to traverse those different views from submitters, and I would encourage the Government to reconsider their shortened time frame—given the farming calendar—to ensure that we do get the full range of views and can make good legislation. Ultimately, that’s what we should be doing here: passing good legislation, not just passing legislation for the sake of it off the back of what the Government thinks they know best. So we do support this bill and I look forward to the select committee process. Thank you.

Kia ora, Madam Speaker. It’s a great pleasure to stand today and take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill.

As most of you know, I love a teachable moment, especially when it involves economics, and even more especially when it involves a world-leading, innovative primary sector—and when you chuck in a capital restructure, well, I get a bit excited. As my esteemed colleague Dr Deborah Russell knows, there’s some things that only a few of us love.

As someone who lives in a community at the pointy end of the just transition, it’s really great to see this bill. We want our farmers to do well and we also want innovative competition that helps to continue to drive our dairy industry to be world-leading.

Again, like others in the House, I want to acknowledge the record payout. I guess, one little teachable moment here is about the concept of circular flow. I know what that payout does for a community like mine. For a little town like Inglewood, it isn’t just about the farmers having more money to spend; actually, that money gets spent at the local supermarket, it gets spent down at the garden centre, it gets spent at the school gala day, and I’m sure there’s the odd pair of flash new gumboots that get picked up down at Farm Source as well. That money then gets spent again in the community. It’s one of the things that helps us thrive, as small rural communities. So there you go, there’s your circular flow clip, level 1 economic students.

But the just transition is really important. We live at the pointy end in Taranaki, when we’re really struggling to continue to meet that challenge. It’s wonderful to see our dairy farmers stepping up, day after day, and meeting that challenge.

This bill will help us to make sure that the dairy industry continues to be competitive and that farmer choice will actually be incentivised. I note we’ve heard about some concerns that this will just make Fonterra all the more powerful and will mean that they will not be encouraged to really be focused on the environment and the changes they need to be sustainable, as they have done in recent times. But what this will do is it will incentivise more sustainable practice. We’ve seen some of the innovation that Fonterra have made, and how it’s encouraged and supported our young farmers to become organic, to be innovative, and to do that riparian planting, because Fonterra’s been able to reward that.

So the idea is that by having greater fluidity, it’s easier for farmers to go in and it’s also easier for them to step out. Now, when that happens, of course, there’s some accountability there. So when you’ve got young, innovative—well, not necessarily young, but it’s a bit skewed that way—farmers who are really keen, and when they look at Fonterra and they look at the proposition of Fonterra, if Fonterra can say, “We’re going to support you to continue to make progress.”, they need to make sure that they’ve got a proposition that’s attractive to those who are leading the way with our just transition for our dairy industry. So making it easier to leave or to make it a proposition for farmers to enter is a really, really important thing.

The concern, though, that’s been raised that there are going to be additional safeguards put in is a little disconcerting in that you want there to be an improved capital structure, but in order to have that capital structure—which I believe is fairly unique; it’s pretty unusual globally—and the idea that that capital structure just means that Fonterra’s going to be left to do what they want is naive. What we need is the safeguards to support liquidity in farmer choice. When you don’t have shares being traded on the open market and those signals are removed, and there are concerns about whether the share price is going to be reasonably set, you need your market maker. You need your financial institution, which will be contracted to continually buy and sell orders to make sure that there’s an appropriate spread between buying and selling and it maintains a means for shares to be traded and for that market to be retained.

I think it’s interesting that there are concerns that increased transparency is a bad thing. We’ve heard how important—how important—dairy is. We’ve heard the numbers—billions of dollars; huge percentages—and we have to make sure that we safeguard and protect Fonterra. We have to make sure they have access to capital. We have to make sure that they are able to be the best that they can be and continue to lead the world. It’s a challenge for Fonterra, of course, to balance the milk price paid, which is a cornerstone, of course, of their constitution, and retention for future investment in the absence of that external capital. So it will be really interesting to have this come to select committee and have those debates about—you know, we’re really clear about the intent, and this is about making sure that we’ve got this fabulous, world-leading dairy industry and the structures around Fonterra that will make sure that happens. We need to make sure that competition is healthy so that our dairy industry remains healthy.

I just want to reflect for a moment that it was wonderful and refreshing to hear from the other side of the House the support for a cooperative, and we’ve seen cooperative structures that’ve really, really supported our exporters because we are able to collectively take our product to the world. So it isn’t just about the outward-facing; it’s about that collective and cooperative way of having a market in New Zealand that means that we are strong and innovative and global leaders. A collective approach or, some might argue, a slightly socialist approach—and I’m really, really pleased to hear from the other side of the House that they love New Zealand’s socialist cows. It’s wonderful to hear from the other side of the House that when it comes to making sure that our primary sector is as good as it can be, a collective approach is a really good one. So I’m glad to see we’re converting you over on the other side of the House—it’s really wonderful.

We’ve heard Fonterra’s shareholders. We’ve heard how strongly they supported with their vote in December the capital restructure, and while we’ve obviously got some conversations to have about that capital restructure and the safeguards that we put in place, I’m a little confused about the concern about the time frame. It’s really, really clear, from those of us who understand the ebbs and flows of the dairy industry and how things work and how Fonterra works that there is a sense of urgency for this bill. This is in response to the needs of the sector, so we’re really, really pleased to be supporting the time frame that has been established for this bill.

It’s going to be really good to have this bill come to select committee and have a conversation. It’s always great to be sitting on the Primary Production Committee because the expertise in that room and the variety of world views means that we have robust debate and that, actually, in the end, we can be confident that we are going to come up with a piece of legislation that will support and futureproof and really ensure a just transition—not just for Fonterra but for all of the players in the dairy industry—and make sure that we continue to be proud of our global, innovative dairy industry and that we can continue to be the best with our socialist cows. To that point, I would like to commend this bill to the House.

I rise on behalf of the Greens to take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. We’re here on Thursday afternoon, and I think I’m about to spoil the National Party – Labour Party love fest, because I actually couldn’t tell the difference between both sides of the argument happening here as well—except for when the previous speaker, Angela Roberts, started talking about socialist cows and socialism. So I would invite that side to have a glance through the old Wikipedia, they might see a few things in there that they like.

With a lot of the laws and the regulations that we pass in this House, I look at it from the perspective of a parent. You know, I worry about the future that we’re going to leave our children and our grandchildren, our tamariki and our mokopuna, because if you look around the world, you know, things are in dire straits. I was just thinking about Pakistan, the other day. The country’s floods were so bad they could see them from outer space. They were that bad. Puerto Rico’s also facing floods and storms as well, and there’s supposed to be a weather bomb hitting up north as well. We’ve had more than our fair share of floods and weather events that are related to climate change—weather events that are related to climate change. I’m mindful that, tomorrow, the climate strikers—the high school climate strikers, the school strikers—will be, once again, on the steps of Parliament; our children and our grandchildren asking us to do better, asking us to make sure that when we pass the laws that we pass in this House, we take those things into account.

So when I hear both sides of the House—that side, the Labour Party, and the National Party—say that they disagree with the Parliamentary Commissioner for the Environment, it concerns me—it concerns me. And it concerns me that the main thing that he was calling for was actually to get a climate assessment on what this bill will do—an independent climate assessment about what this bill will do.

There’s three ways of knowing in this world: there’s things that you know that you know, there’s things that you know that you don’t know, and there’s those things that you don’t know that you don’t know. For me, this bill falls in the middle of that category: we don’t know certain things, and we know that we don’t know them. The Parliamentary Commissioner for the Environment knows that we don’t know them. And if I look at the comments from the Ministry for the Environment (MFE), they also noted in their preliminary review that the proposals could lead to increased emissions—the proposals could lead to increased emissions. So if that’s the case, and this is the case that we’re dealing with now, why not have that climate assessment? I have heard, around the House, to say that our farmers are the most environmentally sound as possible. And I’ve met so many of them who do that, who are moving towards regenerative agriculture, who are doing all the right things as well. Why not give them the certainty? Why not give the sector the certainty and get that assessment done?

So the Greens think that this bill should be paused and a review should be done on its potential impact on the climate. It’s pretty simple, really, with the basic maths. Unless you do the assessment, you know, and actually find out that more cows mean more emissions, that’s just the basic maths of it. Putting a climate review in the too-hard basket and hoping for future tech fixes to cut agriculture emissions won’t make the problem go away. If you take your car out for a spin on the road, you’ve got to make sure that it’s warranted and registered. Is this bill warrantable? No, it is no—it is not, because we don’t know what that impact will be on the climate.

So we have three major concerns with this bill. The legislation is likely to have a negative impact on emissions reduction efforts, making it more difficult to leave Fonterra, and incentivising increased milk production, which will disincentivise sustainable land-use change and entrench intensive dairy farming. A climate impact policy assessment, which I talked about earlier, was not completed for the policy as it did not meet MFE requirements, which seem inadequate, given potential implications. However, MFE did note in their preliminary review that the proposals would lead to increased emissions. Do the assessment.

The regulatory impact statement noted that reduced shareholder requirements will free up farmer capital, which could be invested into sustainable climate improvements. And I did hear a bit of that on—I get you guys confused on this bill. However, there’ll be no requirement for investments to be focused on sustainability. They could equally be targeted at increasing production.

Our second major concern is around entrenching monopoly and stifling innovation. So I support the calls for actually taking a longer look at this bill, because it needs it. We need to take a longer look at this bill to make sure that we iron it all out and make sure that we do all those things well. Because when I think about monopolies, I think of the game; we all think about that game Monopoly. And I don’t know about members around the House, but it caused more than a fair few arguments in my house when I was growing up during the holiday times. When you played Monopoly, you’d go around the board and sooner or later there was one person left—one person left. And the concerns with the monopoly is that all of a sudden you’re going to have one bunch of people owning all the cows.

So our concern here is that the bill provides new measures to support the Dairy Industry Restructuring Act monopoly, including restricting Fonterra’s exposure to external ownership by delinking its unit fund and making it more difficult for other processors to compete with Fonterra by reducing barriers to entry. This will have the effect of stifling innovation in the sector. This is because, as a monopoly provider, Fonterra has less incentive to innovate and competitors face greater difficulty entering the market. These risks are particularly significant in the absence of robust pricing for agricultural emissions.

The Government has committed to measures to boost innovation, reduce emissions in the agriculture sector as part of its emissions reduction plan, and this proposal will likely make it more difficult—more difficult—for those initiatives to succeed. This exposes contradictory Government priorities, further entrenching the power of a State-regulated monopoly. To protect the dairy industry is not aligned with the goal of diversifying agriculture and reducing our national emissions footprint.

And our third concern is about the restrictions imposed on farmers. And I think we could all agree on making sure that we do the right things by farmers—putting in all those supports to help them to do the things that they need to do, working in with the land, making sure we can help those pathways for regenerative agriculture. While Fonterra shareholders voted for this capital restructure, it should be noted that there are potentially negative implications for some farmers with the proposals—effectively, devaluing farmers’ shares to protect Fonterra from external ownership may impact farmers closer to retirement, for example. These changes also make it more difficult to exit Fonterra where land-use change is desired—so those farmers that want to do all the things that they need to do to move towards more sustainable ways of land use. They incentivise increased milk production as the way to improve profitability as opposed to, for example, forestry conversions. This is understandable in the context of Fonterra attempting to protect its milk supply monopoly, but has wider implications for the choices of dairy farmers now and in the future.

Folks, we’ve got to do better, you know, for our children and our children’s children, our tamariki and our mokopuna. We can’t, on one hand, talk about doing all the things that we need to do to make sure that we have a climate-friendly future and then bring in something like this without an assessment to give us a steer on the impacts. We need to do better and so the Greens will not be supporting this bill.

Thank you, Madam Speaker. Well, Fonterra’s an economic juggernaut, and thank goodness it is. What a success story, for all the reasons that the Green Party didn’t identify with. Granted, when it was first conceived, it had about 92 percent of the liquid milk supply, and just to point out to the member on my left, Teanau Tuiono, that has significantly reduced in terms of overall supplier base. It’s now 79 percent, so I’m not quite sure how you reconcile it’s a glaring threat to the environment. I haven’t quite reconciled how you make your sense of that one.

However, in the explanatory note, this Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill does speak to the 2001 Act in how it is being amended. There are a couple of things that need to be reconciled. It says that “New Zealand markets for dairy goods and services are contestable.” And the premise of it was quite obviously to make sure that there wasn’t a total rort by Fonterra or perhaps, you might say, a monopoly. And it also spoke to contestability in the market for farmers in the liquid milk supply. And I think we all acknowledge the importance of not having a monopoly. And that’s why, in its early inception, Fonterra, by its design in the early dairy industry Act, had to supply 10 percent of its liquid milk supply to its chief competitors at cost.

It is well understood that Fonterra’s a success story, and I think we all accept that reality. As previously canvased, it captured 90 percent of New Zealand’s liquid milk supply earlier on; however, we all acknowledge it’s a shrinking pool. I was down in Edendale fairly recently, and the suppliers of the Edendale dairy factory are acutely aware that they have a shrinking milk supply for all manner of reasons that I won’t canvas, given, in my short contribution this evening, I’m running out of time.

The current structure spoke to amending trading amongst farmers, which was the design in the earlier Act, which was created about 10 years ago. In part, it was to stave off the very things that we’re now concerned about, and that was farmers, effectually and effectively, leaving the industry. We know we’ve got a shrinking supply, and this seeks to arrest that concern by giving farmer owner-operators, sharemilkers, those that are supplying Fonterra, some degree of certainty.

However, the ACT Party does have some concerns, as the previous members on all sides of the House, including the Greens, have alluded to. Some of the critics of the legislation have suggested this is a capitulation by the Minister in such as it resulted in the appointment and he thus had to appoint an independent chair for the panel of milk pricing and two appointees. Now, dependant on which lens you look through, that may be the case. Digesting the bill is the real question—what it will ultimately mean for industry certainty. Will the restructuring Act, as drafted in this legislation, allow it to have a proper, clear, transparent entry-exit framework for supply to be well maintained? And I think that’s tantamount for all farmers and their certainty going forward.

A better pathway to join: I think that was canvased by the member Angela Roberts and others in the House previously—I totally agree. It’s seldom that ACT and some of the Labour members agree on all things dairy farming; however, you’re absolutely right. I know, myself, it’s becoming ever-increasingly more difficult for young farmers to get into the industry, and this will create the legal framework for it. It used to be one share, one kilo; now it’s one in four, and by virtue it will create an expedited pathway. And just interestingly, when you actually think about that, that is a massive capital investment upfront that young people historically used to have to have, and arguably that removes that constraint.

Now, I won’t pontificate like there’s a propensity to do by politicians in this place, given it’s now five to five on a Thursday afternoon, but I and the ACT Party will be supporting this bill to select committee so it can have all the necessary kinks ironed out. Thank you very much.

I rise to speak for my full 10 minutes, I hope! No, I’m grateful to be taking a call on this, and I will be very brief, because I know that I am standing between people’s home time on a Thursday afternoon. But I suddenly feel very powerful. Ha, ha! Madam Speaker, apologies. I support this legislation, as does Labour. And I think the final comment that my friend from the ACT Party just made was around younger people being able to get into the industry. I know my father actually was a farmer in Waikato—John Luxton, actually, was his neighbour. And I know that, back in the day, when it was a small little farm that now it’s no longer small, and what was our family farm has now been bought out and bought out and bought out again. And so it’s hard for young people to get into this space, so I’m grateful that we can bring this to the House and I commend it to the House.

Members, the House stands adjourned until 2 p.m. on Tuesday, 27 September 2022. Ka kite anō.

Debate interrupted.

The House adjourned at 4.56 p.m.