Fonterra Regulatory Package Still Flawed

Tuesday, September 11 2001 Stephen Franks Press Releases -- Commerce

ACT Commerce Spokesman Stephen Franks says Parliament's Primary Industry Select Committee has failed to repair flaws in the regulatory package overseeing operation of the new monopoly dairy company Fonterra.

The Dairy Industry Reform Bill was reported back to Parliament today.

"There are still risks for New Zealand dairy farmers in putting all their eggs in one basket.

"The regulatory package is supposed to protect New Zealand farmers, and other manufacturers and exporters from Fonterra's monopoly position. However there is still nothing in the Bill that requires Fonterra to adhere to fair value entry and exit.

"Officials before the Select Committee stated that Fonterra would have strong commercial pressures not to set entry and exit prices above or below fair value. The only evidence in support of this was provided by a consultant to officials. Other submissions, including from New Zealand Dairy Food, warned of the risks to competition through the misuse by Fonterra of its ability to depart from a fair intrinsic value for the shares.

"In the result the Committee recommends that the definition in the Bill link exit and entry values to fair value as defined in the constitution from time to time. This at least requires adherence to the constitution, presently in the form advised to farmers when they voted on the merger proposal. But It does not prevent distortions from quirks in the valuers instructions or the definition of the terms in the constitution, and nor does it stop a 75% shareholder vote from changing the constitution, even reverting to a nominal value share.

"ACT promoted an amendment which would have at least assured farmer shareholders who voted against any such change to the fair value formula, a right to exit on the basis set out in the merger proposal. The majority did not support this proposal.

"ACT is also concerned that for the sake of obtaining a domestic monopoly Fonterra has agreed to features that undermine the potential robustness of its co-operative status. ACT considers that farmer co-operatives in a competitive deregulated industry should have been free from the risk of having to fund fair value exit, and free to agree comprehensive long term contracts with supplier members. When the decision was made to approve a monopoly, without Commerce Commission scrutiny, the die was cast. Fair value open entry and exit and the consequent panoply of regulations became inevitable to protect farmers, other manufacturers, New Zealand consumers, and Fonterra itself from abuse of its monopoly powers, including the strangle hold it would otherwise get on information," Stephen Franks said.

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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