DIRA review tackling dairy impediments

By Chris Lewis, Federated Farmers Dairy Chairperson

Tweaks and amendments to World Rugby Laws seem to happen every other year, and engender intense debate here.  Rightly so, as the game is a big feature of the New Zealand way of life.

It’s an entirely different sphere, but milk is another Kiwi icon as well as being a key to our export earnings and economy.  Not to stretch the analogy too far, but to succeed on the world stage like the All Blacks, our milk product producers also need to be enterprising, innovative and highly competitive.  To do that, we need a sound set of rules governing the industry.

DIRA (the Dairy Industry Restructuring Act) came into play in 2001 and was instrumental in the creation of Fonterra.  A big part of it was ensuring such a dominant industry player didn’t squash smaller rivals.    Now those rules are being reviewed and Federated Farmers is very keen to hear our farmer members’ thoughts, to help guide our submission to the Government.

A lot of our dairy members are Fonterra shareholders, and their livelihoods to a big degree hinge on the performance of the co-operative.  It’s fair to say that performance has been patchy of late.   We’ve got to make sure we have the right settings that enable Fonterra to continue to be a world-leading dairy entity but also a framework that allows other processors to flourish.   Robust competition keeps all parties on their toes.

Preliminary analysis included in the DIRA review discussion document released earlier this month shows the Act appears to be:

• effective at achieving its core regulatory objective of managing Fonterra’s dominance;
• is still relevant and needed at this stage; and
• is unlikely to be encouraging inefficient industry growth or preventing Fonterra from pursuing a value-added strategy.

   

  However, there is some evidence DIRA:

• is preventing Fonterra from effectively managing some aspects of its farmers’ environmental performance, this producing unintended consequences, and\
• providing access to regulated milk for large dairy processors for whom it may no longer be necessary.

A key question is whether Fonterra should continue to be required to take milk from new dairy conversions, and/or from more isolated farming operations.  Agriculture Minister Damien O’Connor has already said he is interested in the option of allowing Fonterra to refuse to take milk from farmers who don’t meet the co-operative’s benchmarks on environmental performance including, perhaps controversially, greenhouse gas emissions.

It’s a tricky one because on the one hand we want Fonterra to maximise farmer payouts and invest in value-adding; on the other we don’t want to leave any farmer’s dairy operation unviable.

Do we want the industry to be value or volume based (or what’s the right mix of the two?) and does DIRA provide dairy companies with the best framework to provide that?

I’m not going to say here what Federated Farmers’ initial thinking is on DIRA because at this stage we want to hear what our farmer members think.  They’re not simple issues but they deserve very careful consideration before the February 8 submissions deadline.