Fonterra and Federated Farmers said the changes should have done away with open entry to Fonterra and at least provided a timeline for industry deregulation.
In response to observations the long review process seems to have produced very little change, O’Connor made no apologies for taking time.
“The legislation deals with the biggest and best company in the country – it is important we get this right.
“I expected and provoked a robust process and I am aware of many critics and passionate supporters of Fonterra who all have validity in some of their comments.
“But in the end I don’t believe the DIRA legislation is the cause for or can be the solution to Fonterra’s performance.”
O’Connor said he never accepted the industry should be totally deregulated, given its importance and the fact milk is an asset for 48 hours and a liability thereafter.
“That exposure for farmers does require some protection, traditionally through co-operative ownership of processing and exporting.”
Deregulation of the industry could lead to unwanted outcomes.
In the Cabinet paper the Ministry for Primary Industries said the DIRA had been effective in the core regulatory objective of managing Fonterra’s dominance.
Its is still required to manage the ongoing risk from that dominance and Fonterra’s incentive to use its incumbency advantage to lock farmers in or out of the co-operative as a strategy to deter them from switching to other processors.
“The reality is Fonterra is still a huge player and from time to time has been a bully in every area of its operation,” O’Connor said.
Neither should the legislation undermine Fonterra’s international competitiveness just for local theory, he said.
Instead of the sunset clauses in the legislation, which were removed by the Government last year, another review will be held in four to six years after the changes are enacted.
“Things are changing quickly internationally and that review period will be appropriate.”
Concerning processing over-capacity O’Connor said the expansionary period of milk production is over, Fonterra has taken volume out of its strategy and no-one wants to see over-capacity develop.
“Some plants should become redundant, over time, around New Zealand.
“But at the same time we don’t want to limit innovation.
“The balance of milk supply and processing capacity should continue to develop industry efficiency.”
The new raw milk access rules should provide competitive tension – no right to 50 million litres a season of Fonterra milk when start-ups reach 30m of their own supply from farmers or in the wholesale market.
About 16 average-sized dairy farms produce 30m litres a year.
“That was designed to provide opportunities for small NZ companies in the domestic market and we believe it is still necessary,” O’Connor said.
“Fonterra has shown it can make mistakes.
“We continue to need that competitive tension among farmers who can move their supply and among companies that can come up with new products.”
Turning to the Government-appointed member of the Milk Price Panel O’Connor agrees base milk price-setting is a well scrutinised process, mainly by the Commerce Commission.
“It is important that those who claim that Fonterra is paying too much for milk can be assured there is an independent member of the panel.”
The calculation of the base milk price must be a sound process though Fonterra still has the right to pay something different if the need arises.
It will also be allowed to pay differential prices, without discrimination, for different qualities of milk.
