“The industry has become highly competitive with a relatively large number of new entrants often backed by deep capital and global businesses,” it said.
“Open entry limits our farmer-shareholders’ and the industry’s ability to maximise value.
“It distorts investment decisions and leaves Fonterra’s farmers underwriting risk for competitors, who cherry-pick their suppliers.”
Agriculture Minister Damien O’Connor said the review will be done by officials from the Ministry for Primary Industries, who will consult widely and do surveys.
The terms of reference said the dairy industry’s performance is of significant national interest, especially in its incentives and abilities to adopt sustainable environmental management practices.
Key sentences show just how wide MPI officials and their invited experts can cast the net.
“After 16 years it is timely to review whether DIRA is operating in a way that protects the long-term interests of dairy farmers, consumers and the nation’s overall economic, environmental and social well-being.”
They were asked to consider whether the DIRA remains fit for purpose, given the dairy industry’s structure, conduct and performance.
The export, 95%, and domestic, 5%, sides of the industry must be examined.
It will ask if the anticipated benefits of the 2001 industry restructure have been realised and considere whether the DIRA contestability regime contributes to or impedes the sector’s performance.
Officials will need to have regard to the choice of business strategies, company structures, governance and ownership arrangements, value creation, investment in innovation, research and development and the environmental performance of the industry.
O’Connor said the DIRA review will also aim to ensure Fonterra is not disincentivised to add value to the milk supply.
“We want to get more value from what you do now, not get you to do more,” he told the DairyNZ Farmers Forum.
“The discussion is about working for yourselves and your families for the future and not just for the profits of Australian-owned banks.”
The legislative discipline in the dairy industry had been underestimated as a factor in the industry’s success, he said.
“Therefore, we have to be cautious when making major changes.
“You change the open exit and milk pick-up obligation on Fonterra at your peril.
“We need to have a wider look at the industry rather than just change those provisions.
“The aim is to reset the dairy industry so it can succeed into the future.”
More specifically, the review will examine the requirement for Fonterra to sell milk to big, export-focused processors, whether Fonterra should be obliged to take all milk supply offers from shareholders and whether the exit provisions should be reconsidered.
Federated Farmers dairy section chairman Chris Lewis said he will wait until MPI publishes the consultation document in September before responding in detail.
“There’s not much meat on the bone at present.”
Lewis said the breadth of the review could be counter-productive because it included topics covered by other Acts that had been reviewed recently by the previous National-led government.
