Thursday, March 28, 2024

Experts to analyse Fonterra from all angles

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Fonterra’s founding legislation, the Dairy Industry Restructuring Act 2001, will be re-examined this year from the grassroots upwards.
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Agriculture Minister Damien O’Connor wants a comprehensive review of the DIRA to focus on environmental issues, land use and how to achieve the best outcomes for farmers, consumers and the economy.

When it was formed Fonterra collected 96% of milk with the rest shared between fellow co-operatives Tatua and Westland.

The DIRA enabled Fonterra to exist as a near-monopoly processor and exporter while leaving room for domestic competitors and to facilitate new entrants.

A fundamental principle was open entry and exit to and from the co-operative for dairy farmers, many of whom have chosen to leave and contract their milk supply to other processors.

Fonterra’s milk market share is down to 82% and approaching the 80% threshold at which the DIRA was to expire, leaving the dairy industry to be scrutinised by market competition.

O’Connor’s review team is tasked with questions:

Has the DIRA done its job and should it be rescinded?

Does Fonterra have effective and sustainable factory gate competition?

Do farmers have adequate farmgate competition for their milk?

Has Fonterra evolved in the best interests of farmers and the NZ public, especially in adding value to dairy products?

How should the dairy industry and its environmental effects be regulated in future?

In a series of weekly articles The Farmers Weekly will kick off the DIRA review by examining Fonterra’s performance, its hybrid co-operative structure, its offshore investments and the volume-to-value strategy pursued by outgoing chief executive Theo Spierings.

First up are arguments by two long-time critics of Fonterra’s performance, Geoff Taylor and Arie Dekker.

Next week Fonterra’s performance as a co-operative will be examined with some responses from veteran Fonterra senior executive Alex Duncan and in following weeks its case for changes to the DIRA and the Spierings strategy will be looked at.

Part one: https://www.farmersweekly.co.nz/section/dairy/view/rivals-are-doing-better

Part two: https://www.farmersweekly.co.nz/section/dairy/view/review-will-scrutinise-fonterra

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