Hon Nathan Guy

Minister for Primary Industries

21 October 2016

Changes to DIRA announced

Primary Industries Minister Nathan Guy has today announced the Government is making changes to the Dairy Industry Restructuring Act 2001 (DIRA) to support the efficiency and contestability of New Zealand’s dairy industry.

“When Fonterra was formed as the dominant market player, DIRA was established to ensure an efficient and innovative dairy industry to promote the long-term interests of farmers and consumers," says Mr Guy.

“A report from the Commerce Commission earlier this year found that competition is not yet sufficient to warrant deregulation at this point. Once sufficient competition is in place, competitive pressure, rather than the DIRA regulatory provisions, should drive the efficiency of New Zealand dairy markets. Competition helps keep businesses efficient, giving individual dairy farmers more options and choice.

“Around 100 submissions were received on the Government’s subsequent proposals to amend DIRA. These were split between those who wanted further deregulation of Fonterra and those who said Fonterra was still in a dominant position.

“Having considered these submissions, the Government has now agreed to a number of changes to the DIRA regulatory regime.”

The changes are:

• Prevent the efficiency and contestability provisions of the DIRA from expiring in the South Island, and require that the next review of the state of competition in the New Zealand dairy industry commence during the 2020/21 dairy season (20 years since DIRA began).

• Enable ongoing monitoring of dairy markets.

• Allow Fonterra discretion to accept applications to become shareholders from new dairy conversions from 2018/19.

• Alter who is eligible for regulated milk from Fonterra, and the terms that it is available on. Specifically:

o Fonterra will no longer be required to sell regulated milk to large, export-focused processors from the start of the 2019/20 season.
o
o All processors purchasing regulated milk will have reduced flexibility in forecasting the volume of regulated milk they intend to purchase from Fonterra from the start of the 2018/19 season.

“Consultation provided new information about risks of some of the originally proposed changes to regulated milk – particularly for downstream markets and consumers. The Government is therefore deferring the consideration of those potential changes to regulated milk for Goodman Fielder and small or domestically focused processors.

“Officials will start a body of work to understand the complexities in this area and any outcomes will inform the next review.

“The next review will commence by the 2020/21 season - 20 years since DIRA was created. The scope of this review will be wider than just competition policy to take into account any impacts from the work on downstream milk markets," says Mr Guy.

An Amendment Bill is likely to be considered by the Primary Production Select Committee in early 2017. The Select Committee process will provide further opportunity for public input. Changes to the Raw Milk Regulations will be made via Order in Council.

Further background to DIRA

• The DIRA was passed in 2001 and regulates the activities of Fonterra to ensure that New Zealand dairy markets are contestable and operate efficiently.

• Among other things, the DIRA requires that Fonterra must accept all applications from farmers wanting to become supplying shareholders.

• The Raw Milk Regulations, made under the DIRA, also require Fonterra to sell a specified amount of raw milk to other dairy processors at an agreed or regulated price.

• In 2015, the Government requested a report from the Commerce Commission to investigate whether the state of competition in the New Zealand dairy industry is sufficient for parts of the DIRA regulatory regime to be allowed to expire in the South Island.

• This report was released on 1 March 2016.

• Public submissions closed on Wednesday 29 June 2016 and several public meetings were held during June.

• Further information is available at www.mpi.govt.nz.

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