Fonterra will have to keep supplying its competitors with milk for another decade under an extension of the terms of the Dairy Industry Regulation Act.
DIRA was put in place by the Government nearly 10 years ago as a pro-competition tool to allow the formation of Fonterra as the dominant market player.
It requires the co-op, which processes more than 90% of the country’s milk, to supply other dairy companies with an allotment of raw milk at just above farmgate price.
Fonterra was approaching the limits of this supply agreement and a DIRA review was due, but Agriculture Minister David Carter has extended the terms, and now the act won’t be looked at until Fonterra’s market share drops to 80%.
Mr Carter says he isn’t convinced there is enough competition now to remove DIRA.
“It’s not about knocking Fonterra back down to 80% at all. It’s about delivering the competitive pressure that’s required to get a dynamic industry. What this decision signals is that having got to an 80% threshold, DIRA would not be needed.”
The decision is a blow to Fonterra, the co-op had been campaigning hard to have the criteria lifted as its total supply approached the old limits.
Chief Executive Andrew Ferrier said in a statement he welcomed the concrete terms of a future review, but is concerned the co-op must continue subsidising some of its larger competitors.
Federated Farmers Dairy Chairman Lachlan McKenzie says the new terms have a pro-competitor bias, and leave the door open for overseas companies to grab a share of our dairy sector.
“Well, they’ve made a decision and we’ll be asking them for the evidence to back up that decision. We seem to have a Government and the public a little bit concerned about overseas ownership of farmland and yet here we are saying that a wholly owned New Zealand company, owned by New Zealand farmers, actually has to supply milk to overseas investors to give them a leg up within New Zealand real estate. ”
Open Country Dairy is one of Fonterra’s largest domestic competitors.
Its chairman Laurie Margrain says DIRA milk is still an important tool for start-up companies.
“They say that larger competitors with their own supply and overseas-owned shareholders are lucky to access milk and compete with them. I think that’s not quite correct.
"The fact is you need DIRA milk to commence, it was a vital component in the creation of Fonterra, and it should continue and I think the Minister is very much on the right track.”
