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Farmers back milk openness but want a say in their future

2 March 2012

Farmers back milk openness but want a say in their future

Federated Farmers has conditionally backed changes to the Dairy Industry Restructuring Act (DIRA) and Raw Milk Regulations. Its submission stresses that any change to the DIRA for Fonterra’s Trading Among Farmers (TAF) hinges on supplier-shareholder endorsement.

“We’re largely backing changes to the Dairy Industry Restructuring Act and Raw Milk Regulations but we also have suggestions that will substantially improve them,” says Willy Leferink, Federated Farmers Dairy chairperson.

“Any change to the DIRA, in respect of Fonterra’s Trading Among Farmers, must wait until Fonterra shareholders have seen and endorsed the value proposition offered by Fonterra’s capital restructure.

“Farmer-shareholders are the real stakeholders. Legislation must not lead Fonterra’s capital restructure and its shareholders must be left to determine the process without interference.

“If Fonterra is legislated to provide a ‘fair value share’, then we believe the other dairy co-operatives must be made to do the same. Otherwise, Westland and Tatua will be handed an unfair advantage when it comes to the share price.

“It’s why getting the milk price right is imperative. It’s the cornerstone of a web made up of the share price, Raw Milk Regulations, TAF and of course, the price independent processors offer at the farm gate.

“We cannot end up with a milk price model that can be tampered with. We need certainty to make investment decisions.

“Consumers also have a right to see that the milk price is not only set correctly, it is transparent too. Federated Farmers agrees the milk price manual should be publically available

“We are so confident we even believe the Commerce Commission should review the milk price manual. In the interests of transparency, we believe the Commission should also audit the base milk price at the beginning of the season.

“This will provide a very public check of predictions before and at the end of the season. It will greatly help to restore trust by removing much of the mythology. It will also help focus attention where it ought to be too.

“Our submission also makes it clear independent processors who have their own supply need to be weaned off regulated milk. It’s perverse they’ll be allowed to take the full quantity of regulated milk for three seasons, even after new regulations take effect.

“Independent processors with their own supply and formed before June 2008, should instead have their 50 million litre allocation ramped down in thirds. If that started in the 2013/14 season for instance, it would transition to zero by the 2015/16 season.

“We also believe the Ministry of Agriculture and Forestry has made a big mistake with independent processors who have no own supply base. With guaranteed raw milk there’s no incentive but a big disincentive against developing their own supply base.

“What MAF proposes with those new entrants who do not pick up milk at the farmgate, flies in the face of the competitive aspects envisaged by the DIRA. If all they have to do is to dial a tanker then there’s no ‘competitive tension’ at the farm gate and no benefit to consumers either.

“While we support regulated milk supply being tied to Fonterra’s seasonal milk curve, we fail to see how removing the current “October rule” and a seasonality component of 10 cents per kilogram of milksolids levels the playing field.

“In response we’ve put up three options instead,” Mr Leferink concluded.

Please click here for Federated Farmers submission on the Dairy Industry Restructuring Act (the DIRA), involving the regulatory regime around Fonterra’s Capital Restructuring, Fonterra’s farm gate milk price setting and the Raw Milk Regulations.


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