The DIRA was introduced to enable the creation of Fonterra and included measures to promote the efficient operation of dairy markets in New Zealand.
“The Fonterra cooperative is a key part of New Zealand’s world-leading dairy industry and a major export earner for our economy, sending product to over 130 countries,” O’Connor said.
Around 95% of all dairy milk produced in New Zealand is exported, with export revenues of approximately NZ$19.1bn (US$12.3bn) a year. It accounts for 35% of New Zealand’s total merchandise exports and around 3.1% of GDP. The industry employs around 49,000 people.
“The success of our dairy sector and the broader primary industries will underpin our economic recovery from Covid-19,” O’Connor said.
“We’re proposing a set of amendments to DIRA that strike a balance between recognizing the shareholders’ mandate for change and enabling the successful function of the wider dairy sector.
“The benefits of a high-performing and efficient Fonterra flow through its near 10,000 farmer-shareholders to our rural communities and across New Zealand’s economy.”
Fonterra’s shareholding farmers voted in December 2021 for a capital restructure of the cooperative, which was formed through DIRA in 2001.
“Because of Fonterra’s size and influence in the New Zealand dairy sector, the Government needed to take into account any potential risks to the long-term performance, innovation, sustainability, and value creation in the wider dairy industry,” O’Connor said.
“To that end we are also taking the opportunity to improve the transparency and independence of the raw milk price setting process, whilst also requiring a dividends and retention policy. It’s important that the amendments receive feedback and today a discussion paper has been released as part of consultation on the changes.”
The proposed DIRA regulatory amendments focus on: Enabling Fonterra to partially delink the unit Fund on a permanent basis; improving the transparency and robustness of the governance and operation of the current base milk price-setting regime; supporting liquidity and transparency in the trade of Fonterra shares in its restricted farmer-only market; and supporting Fonterra’s ability to access internal capital for investment in innovation.
“The Ministry for Primary Industries will be consulting interested and affected parties on these proposed amendments from April through May, and we will consider feedback,” O’Connor said.
“There will also be a further opportunity to provide comment and input during the Select Committee stages of the DIRA Amendment Bill, which I expect will progress through Parliament this year.
“The proposed DIRA amendments will enable Fonterra to move to its new capital structure, and help ensure the long-term success of our dairy sector, and the significant contribution it makes to our rural communities and New Zealand’s economy.”