Friday, March 29, 2024

Dira disappointment

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Fonterra Shareholders’ councillor John Stevenson says the outcomes of the Dairy Industry Restructuring Act have missed the mark.
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A lot of farmers, myself included, are feeling frustrated after the Government announced the outcomes of its review of the Dairy Industry Restructuring Act (Dira) last month. 

A significant opportunity to be able to increase the value of the food we produce has been missed, and after 17 years of “restructuring” our dairy industry, the legislation still only applies to Fonterra and its shareholders. Submissions from farmers for changes to encourage greater fairness in our industry and support a strong NZ Inc that returns profits to the regions have not been listened to.

It is positive to see a recommendation to allow our co-op to protect our reputation and brand by not accepting non-compliant farmers as shareholders. The majority of farmers invest considerable time, effort and expense to follow best practices and meet the many regulations required of them. Those who do not put at risk our hard-won reputation for world-class farming and milk production. 

However, this change doesn’t go far enough to address the very real risks of over-capacity and inefficiencies that accompany open entry. Our co-op is committed to picking up milk from existing suppliers anywhere in the country. But in an environment where we are seeing a flattening NZ milk curve, we continue to see new factories being built, often in the middle of areas with a high density of farms, and our competitors can choose supply close to their factories. The inefficiencies and inequity of open entry disadvantage our co-op and its farmers, and will have knock-on effects that are not in the wider dairy industry’s best interests. 

Equally frustrating is the requirement to supply export-focused competitors with raw milk. Farmers were vocal about their support for fair competition that retains profits in NZ and creates a strong domestic market for NZ consumers. However, access to regulated priced milk for export-focused processors should have been removed. It makes no economic sense to allow these foreign-backed companies to continue to take our milk, process it, use it to compete with Fonterra and other New Zealand-owned dairy businesses in export markets, and then send the profits offshore.

New Zealand needs a strong dairy co-operative if we want our industry to thrive and remain competitive on the world stage. Our transparent milk price calculation ensures the full value of our milk is paid to farmers. This is the envy of farmers worldwide. And it’s not just Fonterra farmers that benefit – our milk price provides a benchmark for other processors and helps ensure that their farmers receive a fair price for their milk. Without the price standard set by a strong co-op like Fonterra, farmers risk becoming price-takers, reduced to accepting what processors are prepared to pay. A strong Fonterra provides a safeguard for all NZ dairy farmers.

As part of the Dira review, farmers clearly asked for a fairer regime that requires all processors to publicise more about their milk price. It’s currently very difficult for non-Fonterra farmers to understand the actual milk price they will be paid by the processor they supply, adversely impacting their ability to make informed decisions on who to supply. I cannot understand why this is not one of the review outcomes.

Proposed changes to the milk price regime are also a concern. Government having the right to nominate a member to the milk price panel is a step too far and creates a direct conflict with the existing independent oversight by the Commerce Commission. With dairy farmers nationwide relying on the Fonterra milk price, we cannot risk the objectivity of the milk price calculation being muddied with political interference.

Seventeen years on, Dira has done what it set out to do – create competition in the NZ dairy industry. Those of us who attended the public consultation meetings earlier this year heard loud and clear that Dira needs updating to reflect today’s world, give NZ-owned dairy companies a fair go on the international stage, and keep profits at home. 

Farmers are passionate about what we do and invest heavily to produce world-class product. But we need confidence that there will be a strong sustainable dairy industry for current and future farmers. We hope the decision-makers are thinking hard about what it would look like if the effort we farmers put in is no longer matched by reasonable and sustainable returns now and into the future. We have a great opportunity to further enhance the competitive advantage we have in the natural way we produce our milk, we just need some help in our corner to make that happen.

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