“We are disappointed there is no firm position on the expiry of the Dira, when the New Zealand market will be considered sufficiently competitive and no pathway to deregulation,” he said.
Fonterra chairman John Monaghan also rued a missed opportunity to reform dairy industry regulations for the benefit of everyone.
He singled out continued access by foreign-owned exporters to Fonterra raw milk at cost, effectively to compete against NZ farmers and earn profits that go to other countries.
“We wanted a clear pathway to deregulation because of the dangers of having restraints when they are no longer required,” he said.
“The industry requires and deserves clarity for its future investment decisions.
“The last thing this industry needs is processing over-capacity.”
Monaghan also argues for transparency on milk price-setting for all processors, not just Fonterra’s openness, on which other companies base their prices.
The Government said the Dira will be amended and renewed for a further four to six years with some changes that benefit Fonterra, the dominant processor, to which most of the legislation applies.
The open entry and exit provisions will be retained but Fonterra will be able to refuse milk supply from farmers unlikely to comply with its terms and standards or from new conversions, Agriculture Minister Damien O’Connor said.
Those terms could include on-farm performance matters regarding animal welfare, food safety, health and safety, employment conditions and environmental, climate change and other sustainability standards.
Monaghan welcomed some progress whereby Fonterra can refuse to pick up milk, for example in the recent case of a Marlborough farmer who consistently failed environmental compliance.
Regarding the base milk price calculation, Fonterra’s discretion will be limited in setting its assumption of risk, the so-called asset beta number that is a bone of contention with competing processors.
It will have to be consistent with dairy and other commodity processors when estimating the cost of financing processing operations in its base milk price calculation.
The minister will also appoint one member of the Milk Price Panel in future.
Monaghan said that came out of the blue and the milk price setting mechanism is already transparent and scrutinised by the Commerce Commission.
Coull said that is a step too far and risks conflict with the Commerce Commission.
Fonterra will be relieved of the requirement to sell up to 50 million litres of milk a season to any independent processor that has obtained 30m of its own supply, either directly or on the wholesale market.
But Goodman Fielder’s access was raised to 350m a season, to recognise changing demand and growth in the domestic market but it will be required to pay an extra 10c/kg milksolids.
That will cost Goodman Fielder about $3m more each year if it wants the maximum volume.
Monaghan said the extra charge recognises the flat curve supply requirement.
His main beef with the proposed changes is the lack of any plan for deregulation.
The Government removed the thresholds for a regulation sunset last year when Fonterra’s market share fell below 75% in the South Island and is not re-instating them.
Therefore the Dira will persist for at least four more years.
Federated Farmers dairy section chairman Chris Lewis said there are useful changes but a lost opportunity in the Dira amendments.
Open entry could have been done away with as competition is robust enough for Fonterra to be given discretion over picking up milk.
“We are pleased that the amended Dira will enable Fonterra to refuse supply when a farmer is well below industry standards relating to the environment, animal welfare, greenhouse gas emissions and the like.
“There are some farmers who have demonstrated their unwillingness to come up to the standard of all the others out there.”
