'Our competitors will be laughing all the way to the bank': Fonterra savages mooted milk regulation changes

Yesterday, Primary Industries minister David Carter launched a consultation on the government’s preferred amendments to the Dairy Industry Restructuring Act (DIRA) and Raw Milk Regulations.

These aim to – to cite government documentation – “regulate the behaviour of Fonterra”​, give independent processors greater access to farm gate milk and support domestic dairy product competition.

Carter said a review of farm gate milk prices showed that Fonterra’s approach (where it supplies 96% of NZ milk) was consistent with that of a competitive market, but he remained concerned by a lack of transparency regarding price setting.

Open for consultation until February 24, review proposals include: public disclosures from Fonterra on milk price setting and a state-led price monitoring regime.

Fonterra pressed for greater milk volumes​

Changes to the Raw Milk Regulations include a three-year limit for independent processors (excepting downstream food and beverage manufacturers) to source milk directly from farmers, to prioritise new market entrants and encourage established firms to source their own milk from farms, thus driving more milk price competition.

But Fonterra was stung by a proposal to increase the amount of regulated (rather than raw) milk available to rivals under regulations from 3% to around 5% of its supply (as per the current, but non-active DIRA maximum).

The company evoked the spectre of the nation’s families missing out on cheaper milk, and said competitors would simply process their extra 200m litre milk windfall into powder and ship it out of the country for lucrative export sale.

Fonterra said its member farmers (1500 of whom had objected to the change), felt ‘press-ganged’ into an effective milk subsidy that was poorly targeted, and risked penalising the very NZ families it was meant to help.

‘Easy’ milk pipeline for competitors​

Chairman Sir Henry van der Heyden said:​"The Government's move to require more raw milk to be handed over to increasingly foreign-owned dairy companies operating in New Zealand will impose nearly $200m [€124.9m] of additional costs over the next three years alone, and work against our efforts to reduce the price of milk in New Zealand.”​

Since none of the other six dairy processors active in NZ supplied milk to the nation’s consumers, van der Heyden added: “The proposed changes will see windfall profits head straight into the pockets of increasingly foreign-owned dairy companies and will hinder, rather than help, New Zealanders’ access to affordable milk."​

Fonterra’s chairman welcomed competition on native milk prices, but said the firm’s global competitors would be laughing at New Zealand.

“When they [foreign firms] hear about this easy milk pipeline in New Zealand, more of them will be queuing to get in the door and skim off the easy profits of effectively buying up to 770m litres of Fonterra produced milk, at a subsidised price and with no risk,”​ he said.

The NZ Ministry of Agriculture and Forestry (MAF) consultation documents on its reviews of Fonterra’s farm gate milk price setting and the Raw Milk Regulations are available here​.