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Fonterra welcomes competition-aiding Raw Milk Regulations amendments

By Mark Astley , 16-Nov-2012

Fonterra has welcomed a series of amendments to the New Zealand Raw Milk Regulations that will support domestic dairy product competition and ensure an “entrance pathway” into the farm gate milk market.

Earlier this week, New Zealand Minister for Primary Industries David Carter announced a handful of amendments to the country's Raw Milk Regulations – the rules by which independent milk processors can access “regulated” raw milk from Fonterra.

According to Carter, the amendments were designed to ensure that regulated milk is targeted to those who need it as a way into the market or as an input to downstream dairy products.

The country's government hopes that the changes will promote efficiency, and ensure that regulated milk doesn’t reduce competition in the farm gate milk market.

The amendments were made following an extensive consultation process and will take effect from 1 June 2013 – the first day of the next New Zealand dairy season.

Regulated milk access

“The regulations ensure dairy processors can access raw milk when they are starting up and aim to support competition in domestic dairy products,” said Minister Carter.

Through the amendment, the total quantity of milk available under the regulations has been set at approximately 5% of Fonterra’s milk supply, and large independent processors – those that collect a significant quantity of milk directly from farmers – will have a three-season limit for accessing regulated milk.

Fonterra chairman-elect John Wilson has applauded the decision to limit the access that large processors currently have to regulated milk.

"Fonterra welcomes competition in the New Zealand dairy industry. For that competition to benefit consumers it must happen at the farmgate. We are pleased that a new three-season limit will see established Independent Processors lose access to regulated milk from June 2016,” said Wilson.

“The Regulations preserve two principles that are important to the Co-operative and that wider dairy sector. They will promote competition at the farmgate, and ensure that sufficient regulated milk is available for dairy food and beverage companies who process raw milk but do not have their own supply, and for start-ups that genuinely need it.”

“From Fonterra’s perspective, the new Regulations address one of our key concerns by requiring that Independent Processors must take at least some milk during peak production months, under that’s commonly called the ‘October Rule’,” Wilson added.

Contestable and efficient

The Raw Milk Regulations run alongside the Dairy Industry Restructuring Act (DIRA) 2011 – the legislation that allowed the formation of Fonterra through the merger of Kiwi Co-operative Dairies, the New Zealand Co-operative Dairy Company and the New Zealand Dairy Board.

Fonterra collects around 95% of the milk supplied by dairy farmers in New Zealand. As a consequence, the government felt it necessary to regulate Fonterra to ensure that the domestic market remained “contestable and efficient.”

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