21 January 2005
Dairy Reform Working

The Government's reform of the dairy industry appears to have achieved its goals, according to a MAF report, Agriculture Minister Jim Sutton said today.

The Situation and Outlook for Agriculture and Forestry in New Zealand, written by the Agriculture and Forestry Ministry, was published in late December.

It says that, while it is early days yet, the Dairy Industry Restructuring Act appears to have succeeded in ensuring that competitive pressure is present in the dairy industry, despite Fonterra's dominant position. The report says that this may demonstrate that the act is creating the incentives that contribute to the goal of "maximizing the economic performance of the dairy industry".

The act was passed in 2001 to create Fonterra from New Zealand's then two largest dairy companies and the Dairy Board. Because Fonterra is about 95 per cent of the dairy industry, the act includes measures to address Fonterra's dominant position. One of these measures is a requirement to supply up to 400 million litres of raw milk per year to independent processors on competitive terms.

Currently, new entrants that have set up are getting milk through Fonterra, though some are planning to get their own supply direct from farmers.

Mr Sutton said that, since it had only been three years since the act was passed and there had only been a few new entrants to test the system, it was early days yet in assessing how well the act had worked.

"But the signs are that it has largely achieved what it needed to achieve."

He said the SONZAF report says that the pressures Fonterra is experiencing with its capital structure are consistent with the pressures that the act was support to exert.

"This may demonstrate that the act is creating the incentives that contribute to the goal of maximizing the economic performance of the dairy industry."

ENDS

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