8 April 2008 Media Statement

Release of second raw milk regulations discussion document

Today's release of a document outlining change options for the Raw Milk Regulations is the next step in a review of the rules surrounding the requirement on Fonterra to sell milk to competitors, Agriculture Minister Jim Anderton said.

Jim Anderton said the document, published as part of a review by the Ministry of Agriculture and Forestry (MAF), outlines change options for the raw milk regulations.

The Regulations require Fonterra to sell a certain quantity of raw milk to other dairy processors at a regulated price.

"This is the next step in a comprehensive review to ensure that the regulations are operating well and that regulated milk is available for sale at a fair and efficient price for all participants in the milk industry.

"The document draws upon the numerous submissions MAF received from farmers, processors, food companies, and interested stakeholders; and proposes some concrete options for moving forward."

An initial discussion document was released in November last year, which outlined the intent of the Regulations and MAF's understanding of industry concerns about them. Industry stakeholders were asked to provide feedback.

Jim Anderton said that both the quality and the quantity of submissions were excellent.

"As a result, MAF was able to draw on a broad range of stakeholder views in the development of options.

"There have been ongoing disputes in the industry regarding the pricing of regulated milk and this review is intended to resolve the issues - I would much rather see firms spend their money on scientists and technologists than a raft of lawyers.

"It is important for the industry to realise that access to regulated milk was only ever intended as a temporary measure until a sufficient level of competition was reached, at which point Fonterra's legal obligation to supply regulated milk ceases."

Jim Anderton said that given the entry of new independent processors, this could occur by 2013 - and potentially sooner.

This emphasised the need to put in place a regime that will ensure a smooth transition to a post Regulated milk environment, he said.

The Discussion document outlines three options:

Option 1 is based on the regime that was in place until 2006/07. It entails total supply of 400 million litres and incorporates a series of rules to manage excess demand.

Option 2 is based upon the 2008/09 regime. This entails total supply of 600 million litres and also incorporates rationing rules should excess demand arise.

Option 3 (the preferred option) is similar to the second with the exception that an auction mechanism is used to manage excess demand. This is seen as the most likely to arrive at a fair and efficient price and result in a smooth transition to a post regulated milk environment.

The review proposes measures to assist and protect small or niche processors that may find an auction incompatible with their business models in addition to seeking industry and stakeholders views on issues regarding winter milk.

"The review also satisfies the Government's commitment to investigate the concerns raised by the Regulations Review Select Committee, which recommended on 22 August 2007 that the pricing formula in the Regulations be amended in a particular way."

A copy of the discussion document and a submission form can be accessed from: www.maf.govt.nz/mafnet/consultation.htm

ENDS

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