The last government intended to amend the DIRA to allow Fonterra to refuse milk from new dairy conversions that were uneconomic to collect from.
It also proposed relaxing the raw milk regulations (RMR) to relieve Fonterra of an obligation to sell milk to established processing competitors.
O’Connor will act immediately to stop the DIRA provisions from expiring in the South Island on May 31 because Fonterra’s market share has fallen below 80%.
“A report from the Commerce Commission, published in 2016, found that competition was not yet sufficient to warrant the removal of the DIRA provisions.
“The Government considers those findings remain valid and the DIRA provisions should be retained, pending further review,” he said.
In so doing, O’Connor has cast doubt on the two proposed reforms of the DIRA – the remote milk pick-up and the RMR sales to rivals.
A DIRA Amendment Bill was introduced to Parliament in 2017 but did not proceed to select committee consideration.
“The Government wants to take a strategic view of the dairy industry, given its place in the economy and passing the 2017 Bill could pre-empt future decisions,” he said.
“The Bill that the Government now intends to introduce, therefore, deals with the issue of expiry.
“This will mean that other DIRA provisions will continue to apply throughout the whole of the country, allowing time for the Government to undertake a comprehensive review of the DIRA before any other legislative changes are made.”
He told BusinessDesk the National-led government Bill did look at some of the DIRA issues but “had been gutless” on others.
“It’s such an important industry.
“It is crucial we get it right.
“Fonterra is our biggest and best company but it shouldn’t take for granted the advantages it has through legislation.”
O’Connor said the obligation to pick up milk was a fundamental right of co-operative shareholders.
Any loss of those rights would need to be very carefully considered.
On supplying milk to rivals, O’Connor said there was a reasonable expectation Fonterra shouldn’t be forced to supply milk to rivals directly competing in its export markets but there was an obligation in terms of supplying Kiwi consumers.
The DIRA review would be initiated later this year, when Cabinet approved the terms of reference.
Fonterra is disappointed O’Connor won’t implement planned changes to the DIRA, particularly to its requirement to pick up all milk.
Chairman John Wilson said the new Government had chosen to delay DIRA amendments and have another industry consultation on what were now 17-year-old regulations.
“The DIRA needs reforming and the top of the list for us would be our option to decline milk from areas with fragile ecosystems where it would be unprofitable to pick up.
“Most farmers have fantastic environmental systems and we don’t want to be forced to continue to pick up from unsustainable places,” he said.
