Instead it wants to introduce a 12c/kg handling fee, it says in its submission to the Primary Industries Ministry’s review of the Dairy Industry Restructuring Act.
All other processors should be required to publish their average milk price paid to farmers and details of how they set it, Fonterra said.
DIRA should evolve to cover the whole dairy industry and not just control Fonterra.
“A modernised DIRA will contribute to delivering our shared vision for the future of the industry,” chief executive Miles Hurrell.
“Some safeguards are still critical today and they should be expanded to be a requirement of every dairy processor.”
Submissions closed on February 8 and Fonterra is the first to publicly release its 66-page submission, with some commercially sensitive facts and figures blacked out.
Both open entry and exit have been superseded by Fonterra’s policies and market conditions, Hurrell said.
“In an environment of low to flat milk growth and significant invested capital we would have limited interest in turning away milk.”
And there were also the usual safeguards under the Commerce Act.
Repeal of open entry would enable the company to refuse applications where there is a reputational issue, for example environmental or animal welfare.
Fonterra would continue to collect from existing suppliers and wouldn’t expect to prevent suppliers from increasing production, it said.
Its first preference is that open entry and exit be repealed in full, an option the Ministry for Primary Industries included in the DIRA review discussion paper released in November.
But MPI also said, in its view, the absence of the DIRA could leave significant barriers to entry and expansion by independent processors.
Fonterra’s second preference is to repeal open entry and exit in any region where its milk market share drops below 75%.
In effect, that would mean Waikato and Canterbury at present, though the figures of Fonterra’s market share by region were blacked out .
That is a new stance by the co-operative and is being put forward as a compromise proposal along with another review of the DIRA in three years.
Fonterra said repeal of open exit does not mean farmers will be locked in to supply the co-operative because normal anti-competitive rules will apply.
On the positive side, repeal will let it to pursue a strategy towards more value-add and less commodity processing.
Instead of being required to build capacity for all possible milk supply it could spend more on research and development.
Its third preference is that new conversions be exceptions from the open entry rule or, in other words, that Fonterra be able to refuse to collect a new conversion, perhaps in geographically remote regions.
Farmers wanting to rejoin Fonterra are unlikely to be refused because independent processors have invested in prime dairying areas, therefore close to Fonterra’s existing plants.
It claims to have learned from the NZ Dairies experience, at Studholme, South Canterbury, where it was found by the High Court to have discriminated against returning suppliers.
Fonterra argued its milk price manual has delivered confidence in the base milk price calculation and that transparency should be spread throughout the industry.
But options to increase regulation or have the Commerce Commission set the price would be counterproductive.
Meantime, Open Country Dairy has brought judicial review proceedings against certain conclusions in the commission’s 2017-18 base milk calculation review.
The case concerns the ongoing dispute over Fonterra’s low asset beta for risk assessment that in turn delivers a higher milk price for farmers and flows on to competitors like Open Country.
“We are actively working to resolve the commission’s issues with the asset beta used in our milk price calculation,” Fonterra said.
Earlier Open Country told MPI the DIRA is not working as it should and greater integrity, transparency and objectivity are required in milk-price setting.
It wants an independent dairy authority for more supervision and no change to open entry and exit.
Fonterra’s reasons for a 12c/kg margin for raw milk sales to Goodman Fielder and boutique processors are the additional costs of flat supply and running a milk sourcing operation.
Its said maintaining a supplier base has extra costs in the business relationship with farmers are not yet reflected in the base milk price.
