Dairy Industry Restructuring Amendment Bill passed

Provisions to manage Fonterra’s dominant position in New Zealand’s dairy markets will continue under changes to the Dairy Industry Restructuring Act 2001 (DIRA).

Minister of Agriculture Damien O’Connor says the law change, passed by Parliament today, means the efficiency and contestability provisions of the Act will no longer expire in the South Island on 31 May 2018.

The Government will now undertake a comprehensive review of the DIRA and consult fully with the dairy sector.

Minister O’Connor says the review will consider key issues facing the dairy industry, including, for example, environmental impact, land use, Fonterra’s obligation to collect milk, and how to achieve the best outcomes for farmers, consumers and the New Zealand economy.

Details on timing, delivery and definitive scope will be considered by Cabinet in the coming weeks.

“It was not in the interest of farmers, dairy processors, consumers, or the wider New Zealand economy to let these key DIRA provisions expire in the South Island and tinkering with the Act would not answer some of the bigger questions facing the industry.

“By rolling over the Act and committing ourselves to a wide-ranging review we are taking a considered and strategic approach to the changing needs of the dairy industry.’’

A report from the Commerce Commission, published in 2016, found that competition was not yet sufficient to warrant the removal of the DIRA provisions. This Government is satisfied that it is appropriate to retain the existing provisions while the review is conducted.

“Officials are currently working on the terms of reference for the review, and I intend to share these with the New Zealand public and the dairy industry in the first half of this year,” says Mr O’Connor.

The DIRA was passed in 2001 to manage Fonterra’s dominant position in dairy markets, until sufficient competition emerged. Its automatic expiry provisions were triggered in 2015, when other dairy processors collected more than 20 percent of milksolids in the South Island.

Key DIRA provisions to remain in the South Island

Fonterra must accept applications to become a shareholding supplier, except in limited circumstances, and allow shareholding suppliers to withdraw from the Cooperative in a timely manner.
The Commerce Commission must each year review the calculation of Fonterra’s farm gate milk price for the dairy season that has just concluded. It must also review Fonterra’s methodology for calculating this price.
Fonterra suppliers are permitted to sell 20 percent of their season’s milk production to another processor.

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