DIRA extension key to competitive dairy markets

The Government is to extend the pro-competitive conditions placed on dairy co-operative Fonterra and has committed to reviewing the eligibility criteria for access to regulated raw milk.

Agriculture Minister David Carter says the conditions contained in the Dairy Industry Restructuring Act 2001 (DIRA) give farmers choice about who they supply milk to, and provide an incentive to price milk competitively.

“When Fonterra was formed, it was placed in a privileged position as the dominant market player. This required rules to ensure a competitive and innovative dairy industry,” says Mr Carter.

The Act contains triggers, or sunset clauses, that could have been met some time next year.

“At this point, the Government is not confident there would be sufficient competition in the dairy industry to protect the long-term interests of farmers and consumers,” says Mr Carter.

“The Government has agreed to set new triggers at a Fonterra market share of 80% in the North Island, and in the South Island, excluding the area covered by the Westland Regional Council. At that time, a full review will look at the ongoing need for the DIRA.

“This is not about reducing Fonterra’s market share. It is about delivering fair and open competition and innovation to the New Zealand dairy sector.

“Concerns were also raised in submissions to the recent review of the DIRA about the eligibility criteria for access by independent processors to regulated raw milk. The Government has acknowledged these concerns, and will consider them in a review of the criteria.

“Fonterra is proposing substantive changes to its capital structure, including a proposal to allow its shares to be traded amongst its farmers (TAF). This will require further significant changes to the DIRA to ensure ongoing competition in the sector.

“This extension to the Act provided regulatory certainty while the Government awaits the capital structure proposals.

“The Government anticipates receiving a detailed proposal from Fonterra in the near future to allow time for full public consultation to take place and for Fonterra to meet its goal of having TAF in place by late next year,” says Mr Carter.

Click here for background on DIRA.

ENDS

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