Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill

Thank you, Madam Speaker. It gives me great pleasure to support this bill on behalf of the National Party. First of all, I just want to say a word of thanks and support for the Labour Party. They have a rich history of supporting legislation in this area, from the formation of Fonterra to the last changes to the Dairy Industry Restructuring Act in their first term and in this second one as well. So, from the dairy farmers of New Zealand that are Fonterra suppliers, to the Labour Party a big thankyou for the way that you have engaged on that in the past, and this is another attempt to do so here. So thank you. I think that it’s good to see that—

💬 Hon Member: That’s generous.

Yes, it is, but it is praise that is worth giving out because it actually is genuinely deserved.

This bill has a few issues in it, though, that need to be sorted out at select committee. Previous speakers have gone through the history of what’s happened to get to this point, where farmers have voted on the capital structure that they want to have for Fonterra, Fonterra has taken that to the Minister of Agriculture, and the Minister has listened and, to all accounts, enabled that to happen. There are a couple of points, though, where the Minister has intervened more than the farmers would have wanted or expected, and that’s part of the negotiation process now, I guess, that goes on during the select committee process. As long as the select committee takes an open approach to that, then I think that we will be comfortable to work through with the Labour Party to see if we can get some resolution to those issues.

So one of the issues is the number of ministerial nominees to the milk price panel, which increases from one to two. Now, potentially, that is something that you could see the Labour Party seeing as an opportunity for more Government intervention, I guess, in that price-setting, and they may see that as something that they will not budge on. It probably isn’t the end of the world to do that, but it “requires the chair … to be fully independent of Fonterra, appointed only on the approval of the Minister,” and when it gets to the stage that the panel is, effectively, controlled by the Minister, I think that does take it beyond the safeguard aspect that the Labour Party may be looking at at the moment and into the aspect of control over a body that, essentially, the Government doesn’t need to be involved in. The reason I say that is that the milk price is a very open market. The other suppliers out there tend to follow the Fonterra price on the ground, rather than necessarily a milk price panel that comes up with a great, independent price that the country can follow.

The second issue is the Commerce Commission power, and that’s probably the issue I have the most concern around. The Commerce Commission as an organisation has a very poor history in New Zealand. If you look back on its inability to deal with major issues of imbalance in our commercial system, it tends to pick on the easy hits that it can do. If any organisation needs reform, it’s probably the Commerce Commission in attitude, approach, and, actually, delivery, and to give them more power is, I think, giving an organisation that doesn’t understand its role and doesn’t actually understand how it should fulfil that role a dangerous precedent. So I would be very cautious and I would caution the Labour members from giving too much power to the Commerce Commission. One issue that they’re probably acting in at the moment is supermarkets and you haven’t seen the Commerce Commission being very active in that area at all, and that just shows that they’re not a body that I believe we can engage with to the extent of this power that’s given to them here.

There are some other changes in the bill that are pretty small, but the two big ones there are, effectively, the power the Commerce Commission gets and the change to the milk price panel. Those two, I think, need to be reviewed, and I thank the Labour Party for supporting Fonterra dairy farmers and the dairy industry. But I’d just caution that there are two or three areas there that possibly could do with change, and I look forward to that happening in the select committee.

Thank you, Madam Speaker—and talofa. Thank you for the opportunity to take a call in this first reading of the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. It has been said in previous speeches already—but it’s worth repeating—that New Zealand dairy farmers are world-leading, and the Fonterra cooperative has, of course, been a central part of this.

I want to do a quick shout-out, while I have the opportunity, to our hard-working dairy farmers in Kaipara ki Mahurangi, as was evident at the recent Northland Dairy Industry Awards. There were two prize-winning Wellsford farms, both first-timers, and it was great to see people like Michaela McCracken, only 21 at the time, scoop up such prestigious awards, so I thought it would be worth a shout-out.

Back to Fonterra though: as New Zealand’s largest company, their ongoing performance is critical to our economy and it’s very important that we get the settings right so that Fonterra can continue to perform well. So the Government has agreed to amend the Dairy Industry Restructuring Act to support Fonterra’s morph to a new capital structure, which will enable them to compete for future milk supply on a sustainable basis.

The risk mitigation and improved transparency measures in this bill were developed with consultation with industry. They will ensure that there is ongoing support for their performance.

This bill, in our view, strikes a right balance between supporting Fonterra shareholder mandate as well as doing its bit to improving transparency in the sector. With the increasing challenges in the dairy sector in general—and the Minister, the Hon Meka Whaitiri, in her first reading speech, touched on those quite extensively—it is really important that we provide certainty and continued safeguards for Fonterra, for farmers, and for the wider dairy sector. I commend this bill to the House.

Thank you, Madam Speaker. It’s a pleasure to rise and take a call on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill. I’d like to start my contribution today by acknowledging the Government’s announcement earlier, introducing a further 3,000 seasonal workers, so that’s increasing it from 16,000 to 19,000 seasonal workers a year. I know that that will be welcomed by our dairy industry in particular.

As has been pointed out, this is a bill to amend Fonterra’s capital structure to help it with milk prices when we’re seeing a potential decrease in milk supply; so to help give some certainty going into the future. It will also make it a bit more affordable for farmers to buy into Fonterra and become Fonterra-supplying farmers. So on that note, I’d like to shout out to the really hard-working Fonterra members—many of the 10,000 Fonterra farmers are in my electorate in Whanganui, particularly in South Taranaki and Stratford—and I want to thank and acknowledge them for the vital role that they’ve played in contributing to the success of our economic recovery and for taking the sharp edges off the global economic downturn that we’re experiencing.

This bill is particularly important because, as I mentioned, we’ve got a number of Fonterra farmers in my electorate. In fact, if you are familiar with State Highway 3 driving north, heading into Hāwera, just on the left there before you turn off to Fonterra’s Whareroa plant, we’ve got one of our local icons, the Fonterra cow. In addition to the Whareroa plant we’ve got the Eltham cheese plant, which is another of Fonterra’s plants, and the Kapuni plant in my electorate as well. So this is a crucial one for me, because Fonterra is a large employer in my electorate. So it is an absolute pleasure to be able to support this bill. I really look forward to hearing the submissions when they come to the Primary Production Committee which I sit on, and with that, I commend this bill to the House.

Thank you very much, Madam Speaker. It’s a pleasure to speak to the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill, aka DIRA bill.

I join my colleague and friend across the House—and colleague within the electorate, the wonderful Kaipara ki Mahurangi—Marja Lubeck, who has rightly acknowledged the importance of the sector to the whole area including, as she says, Wellsford, as recognised in a couple of particular cases recently. So that’s very pleasing, to hear that acknowledgment, and I join her in making it to the people of our area.

It’s worth noting as well—zoomed out, so to speak, geographically at least—the importance of the rural sector, the primary sector, to our nation, most obviously the goods and services themselves, the importance of dairy to sustain us all. And in an economic sense, the export dollar that comes with those goods earning well for New Zealand—particularly well recently, I understand. And the primary sector in general, dairy within that, and of course within that again—concentric circles coming in—focusing on Fonterra itself. Of course, that’s only a part of the dairy sector, but it’s a large part—some 79 percent, I understand, so nearly four-fifths of the market and the supply and so forth within New Zealand. So, obviously, hugely important subject matter for a piece of legislation.

The legislation itself is significant because the way in which Fonterra—as something of a special case business or entity within New Zealand—is dependent on what the rules of the game that are set by this place allow it to do. Of course, in corporate law generally, that’s the case. But Fonterra—our largest company, I understand, and a particular set-up and arrangement deserving of this particular attention—of course needs certainty to be able to operate in a way that is in accordance with the rule of law, in accordance with statute, and in a way that allows all of its key players to interact with the system in a way that is fair and reasonable for them but also maximises the gains and the production and the supply of the sector as a whole. Because as we’ve discussed already at some length in this House—previous speakers, including on the first occasion of it being debated, the first part of the first reading—we all know how important it is to this country.

So, thinking about the process as a whole, others have touched on the fact that there has been consultation. Across the other side of the House they’ve said, rather breezily, that the Government’s been working with Fonterra and is keeping it very much happy. My colleague and friend the Hon David Bennett has struck a slightly more cautious note, suggesting that’s important—and, of course, he’s right to say that it’s important that the Government remain in step with Fonterra and those key players within that set-up, and in fairness to the market more generally. So that’s a note of caution which all policy makers would do well to heed as the process goes forward. From here we look forward to a select committee process, second reading, committee of the whole House stage, and so forth.

The select committee process that’s coming up will be so important because that’s the opportunity for this institution to hear from those who are on the ground, those who have muddy boots, who know exactly what is needed, they are experiencing—pardon me?

💬 Maureen Pugh: Red Bands.

Oh, Red Bands; I’ve had that clarification from Maureen Pugh, who’s worn a pair of Red Bands or two in her time. I don’t often wear red clothing or attire on this side of the House, but I think it’s the one exception that’s allowable.

So those who know most will contribute well to that process. Our role in this House, of course, is to decide at the first reading whether the intentions seem worthwhile—if the basic detail is workable—and we’ve concluded, in the National Party, that it’s a case of so far so good. Obviously the detail is to be scrutinised carefully going forward. So, just considering what that basic level of detail is, it’s about enabling different ways of shareholding, different levels of accountability and scrutiny within the company. For example, we’ve seen—in the way that the bill is put together—a number of safeguards, I suppose we could say. So we’re going to have an increased number of ministerial nominees to the milk price panel, from one to two—a doubling, if my maths doesn’t desert me—and the requirement for an independent chair, appointed with the approval of a Minister. Of course, there’s a certain amount of Government input to these decisions with ministerial nominees and approvals being required. We expect and hope that the Minister, from time to time, will exercise their responsibility in a cautious way, in a considered way, one that reflects not only the importance of the certainty that is needed to be enjoyed by the sector to continue to operate well but to reflect the ambition of the sector as well—we’ve seen that the restructure is being justified in terms of seeking to attract and retain supply in an increasingly competitive environment.

Other safeguards, if I may call them that: the powers being given to the Commerce Commission to issue binding directions to Fonterra following reviews. There’s been perhaps the closest it’s come, I think, to a difference of opinion across the House in terms of the value of that. David Bennett may or may not be on the Christmas card list of the Commerce Commission, but, actually, he’s right to express a healthy degree of scepticism about the performance of any Government agency. I think it’s fair to describe them as that, albeit one that has a role of scrutiny—considering, in particular, whether there are anti-competitive practices. We’re talking, after all, about a company that enjoys a nearly 80 percent share in the market; it’s almost anti-competitive by very definition. So the role of the Commerce Commission to be able to consider carefully the role of Fonterra is appropriate, and to be able to issue binding directions—well, we’ll see how that power is exercised, and, of course, it’s always important that that is done in a reasonable and knowable fashion.

So we’ve had, as I say, a bit of consultation already and that will continue. I think it’s worth noting, however, that what we are entering into in this legislation, this new regime, is actually a continuation of an existing regime and an evolution of that rather than a revolution. So, for example, in 2012, Fonterra commenced its capital structure with those two markets, as they’ve been described: Fonterra’s shareholders’ market and also the unit fund, the latter being where farmer shareholders are able to trade units in economic rights and shares—of a non-voting nature, I understand—in Fonterra. So they have skin in the game, so to speak, as well as mud on their boots, if you’ll excuse the extended metaphor. I’m trying to avoid the look of Maureen Pugh; she’s going to give me some grief about it, no doubt. No doubt I deserve it.

Anyway, the purpose is to provide the certainty, as I canvassed earlier. I didn’t really go into what’s meant by certainty, but there’s a huge value in players in a market being able to know what the rules of the game are so they can act accordingly. If we think the purpose of a market is to maximise the gains—and I don’t just mean economic gains, although, in this case, it is of an economic nature as well as a social good that we have a strong dairy and rural sector. But for the rules of the game to be known, it’s important that there isn’t the unwarranted prospect of a legal challenge. I understand that the current Act—that is to say the Act prior to the amendment that’s going to be made by this legislation—doesn’t exclude or prohibit Fonterra from undergoing this capital sort of restructure, if you like, explicitly. But there’s enough doubt about it to be a reasonable use of this House’s time to want to exclude that possibility. Not in a way, I think, and not in a way, I hope, certainly, that would deny anyone existing legal rights. But, rather, just to create a more certain regime and to ensure that those who are involved in acting in good faith, in a way that’s rational, according to the rules of the game as they understand it, and they honestly believe that to be the case, they won’t be dragged through the courts with all the uncertainty as to time, cost, and outcome that would be implied in that.

So, I’ll just conclude my remarks on a more general nature, such as I began with, having delved into at least a little bit of the detail, which is to note the strategic importance for rural communities. Again, I acknowledge that Marja Lubeck has made that comment in relation to the community which we both are able to represent. I think it’s worth noting that the community as a whole will benefit and thrive and prosper when the dairy farmers are able to do the things that they do because they provide, in turn, business and support for others who, in turn, provide business and support for others, and so on. So, for all those reasons, we commend, in good faith, this bill to the House. We look forward to further discussions at select committee and beyond.

Thank you, Madam Speaker. I rise to make a relatively brief final call this afternoon to sum up somewhat the main points.

Three things come to mind, listening to the contributions made today and also previously in this debate. The first thing that comes to mind—I think the most frequent comment that was made—is that New Zealand dairy farmers are in fact world leading and that’s been well acknowledged, as has the fact that Fonterra, the cooperative, has been a really central part to achieving that. Secondly, the bill will provide greater economic security for New Zealanders and also go some way to at least reducing that long-term risk to what is a $22 billion industry, our highest value export industry, in fact. And thirdly, we believe this bill strikes the right balance between supporting that shareholder mandate while also improving the transparency, which is important.

So the final comment is that we believe certainly that it’s important that this amendment bill proceeds quickly, particularly because it gives certainty to Fonterra, it gives certainty to farmers and the wider dairy sector. So I’m pleased to support this bill and I commend it to the House.

Motion agreed to.

Bill referred to the Primary Production Committee.

Instruction to Primary Production Committee