Fonterra is seeking to make changes to the Raw Milk Regulations which oblige it to supply other dairy industry players with certain volumes of milk.
The Raw Milk Regulations were introduced by the Government in 2001 at the same time as Fonterra was formed; to ensure competition in the dairy industry.
But Fonterra says times have changed since 2001 and now independent processors are taking advantage of the rules.
The co-operative says while it wants to ensure domestic competition thrives, some independent processors take their regulated milk supplies and export the processed product.
Fonterra says these processors, like Tatua, Westland, Open Country, Synlait, Miraka and New Zealand Dairies, then compete with it in export markets.
According to its annual results, Fonterra controls 45 percent of the world’s dairy trade.
Fonterra director John Monaghan says large commodity processors with their own milk supply should be excluded from the regulated milk supply.
“Our submission is about preserving competition in the domestic market. Each of those independent processors now has its own supplier base and it doesn’t need Fonterra’s milk. The regulations made good sense in 2001, in 2011 they’re actually hurting New Zealand, hurting domestic competition and hurting our farmers.”
Mr Monaghan says these companies are gaming the system by establishing virtual processors who buy additional volumes of milk above their real entitlement.
“They’re able to set up virtual processors. They contract with a virtual processor and they buy additional volumes of regulated milk above their entitlement and then they have that made into export products. And that is outside the intent of the regulations when they were set up.”
However, Mr Monaghan would not name the companies he accuses of gaming the system.
However, the independent processors say Fonterra is simply framing the debate in its favour and hedging its bets by appealing to MAF to change the Raw Milk Regulations after having little success in court.
Dairy industry analyst and independent processor spokesman, Peter Fraser, says the Raw Milk Regulations were established to ensure there was competition to Fonterra period.
“The actual words in it said raw milk will be made available to anyone who asks for it. That’s pretty bloody clear, you don’t exactly have to have gone to law school for 10 years to work through the statutory interpretation issues associated with that. It’s basically open access to regulated milk. So the whole argument that this was only set up to look after the domestic milk market is fundamentally wrong.”
Peter Fraser says the domestic dairy market is tiny and independent processors were always going to be selling their products globally.
95 percent of New Zealand’s dairy goods are exported.
The Raw Milk Regulations were not designed solely to ensure domestic milk competition.
“The Raw Milk Regulations were not designed just to go and look after the New Zealand domestic market. The bit that was designed to look after the NZ domestic market was the 250 million litre allocation to New Zealand dairy foods and the separation of NZ dairy foods from NZ Dairy Group and it being sold to an independent company.”
