“We believe the cost of open entry on Fonterra is too high,” the committee reported back to Parliament after considering the Dairy Industry Restructuring Amendment Bill (No3).
“We heard many submitters talk about the importance of loyalty.
“They believe that the right for farmers to return to Fonterra once they have left should be removed.”
Fonterra chairman John Monaghan welcomed the move, calling it a unanimous cross-party recommendation to Agriculture Minister Damien O’Connor, the bill’s sponsor.
“It will help to create a more level playing field for our co-op and ultimately keep more of the value created by dairy farmers back here in New Zealand.”
In future open entry would apply only to farms that have not previously supplied Fonterra or another processor, Monaghan said.
The legislation needs to go through a few more steps before it becomes law but the adjournment of Parliament until April 28 now makes the timing uncertain.
O’Connor’s office said his reply might be delayed by covid-19 and timetable for further progress through Parliament is unknown.
Committee member and National’s primary production spokesman Todd Muller said bi-partisan agreement was reached on the need for some amendments, including the open entry provisions.
“It is to the credit of the Government members that we all essentially got to the same position on removal of the right to return to Fonterra.
“It is relatively unusual that the Government should shift its position on a fundamental principle during a select committee process.
“All the key players moved a bit and found a common landing.”
Committee member and NZ First agriculture spokesman Mark Patterson commended O’Connor for allowing a consensus view to form.
“After the first reading and the expressions of concern from NZ First and the Green Party about continued open entry he realised that not everyone agreed with the original proposals in the bill.
“Rather than battling it out on the floor of the House he gave us the room to come to a common view.”
Muller thinks Fonterra will not refuse re-entry without good reason when milk supply nationally is not growing.
But it is possible Fonterra might have reason to pay different milk prices, which the new legislation would allow.
He disagreed other processors are disadvantaged by the amended rules.
“In the present climate I just can’t see large numbers of suppliers ditching their processers and coming back to Fonterra while open entry still applies.”
The committee said the establishment of large dairy processors since Fonterra’s formation in 2001 makes it appropriate to remove some of the extra burden that was put on the co-op.
Open exit from Fonterra without penalties should be retained to allow continued contestability in the market for farmers’ milk.
The committee said open entry should be retained for farmers who were previously sharemilkers or contract milkers and have progressed to more than 50% equity in a supply farm.
It suggested the new provisions apply from June 1 2022 and noted farmers intending to return to Fonterra would need to decide to do so before December 2021.
“Shareholders who have left will have a fair window to head back to the co-op should they choose. It is no longer tenable for that provision to be open-ended,” Patterson said.
“A strong Fonterra is not only important for the dairy industry but for the economy as a whole and never before has this reality been on full display as we face these exceptional times.”
Other dairy processors approached for comment said the revised form of the DIRA is not a priority.
