NZers won’t gain from DIRA changes

Fonterra doesn’t usually pick public fights with the government but it is making no secret of its strong opposition to proposed changes to the Dairy Industry Restructuring Act.

I’m not sure what further scrutiny of the way the company sets the price of milk is supposed to achieve in theory. In practice it will add compliance costs to the company while looking at only one part of the production chain from paddock to the consumer.

That is however, a relatively minor inconvenience compared with the proposed changes to Raw Milk regulations which Fonterra chair  Sir Henry van der Heyden said won’t work and will have New Zealanders subsidising increasingly foreign-owned dairy processors that don’t sell milk in New Zealand and who send their products and profits offshore.

Fonterra’s Shareholders’ Council chair Simon Couper (not online) says:

“Competition is good as it ensures our Co-operative stays lean, efficient and competitive however, there is no successful example in economics where a business is forced to subsidise its competitors, says Couper.

“The Government’s legislation proposes that New Zealand subsidise increasingly foreign-owned competitors while doing little or nothing to ensure milk is available to those processors who need it most or who assist the domestic market . . .

Based on 2011/12 projections less than half of the 570m litres supplied to other processors  this season will make it to the New Zealand domestic market with approximately 300m litres (53%) forecast to go to Independent Processors who primarily export product overseas.

Of that 300m litres two-thirds is claimed by processors with some level of foreign ownership.

“When one sector of an industry has to subsidise another it creates inefficiencies and false economies.

“This proposed legislation would further fragment the New Zealand dairy industry and weaken New Zealand’s export returns, strengthening our overseas competitors at the expense of the New Zealand economy and the average New Zealander.

 Federated Farmers also says none of the proposed changes will reduce the price of milk for domestic consumers:

“Not one of the changes proposed to the Dairy Industry Restructuring Act, or its regulations, will make milk any cheaper in the supermarkets,” says Willy Leferink, Federated Farmers Dairy chairperson.

” . . . One of our Wellington staff members tells me Karori New World has been selling two litres for $3, as long as you spend $25 in-store.

“At that price, it is identical to what Cole’s has been selling milk for in Australia, once you take out our GST and exchange rate differences.

“What concerns me is that people seem to think farmers get all of the value from retail milk sales. I can tell you our share in a one litre carton of retail milk is around 360 millilitres.

“If someone’s skimming the cream I’d suggest looking harder at the wholesale and retail ends. How come Karori New World can sell two litres of milk for $3 but another New World sells an identical bottle for $3.72?

“That’s where the margins are, instead of the farmer who produce the milk in the first place.

“So what people need to really ask of the Government and of proposed changes to the DIRA is this; where is the domestic competition? Not just at the supermarket but for farmer’s milk itself.

“Precious few of the processors who take this milk, bottle it and then put it onto the shelves of supermarkets or dairies. Too few of these processors get milk from the farmgate and compete locally as they do internationally. We really need to know why,” Mr Leferink concluded.

Among those who do supply the local market are boutique cheese and ice cream producers. If the proposed changes are enacted these small locally owned businesses could be squeezed out by bigger foreign-owned companies which then export the milk.

The ODT editorial also raises doubts over the milk shake-up:

In an attempt to placate public concern about soaring domestic milk prices, the Government appears to have alienated our biggest company and largest export earner and also unwittingly assisted its partly owned foreign-owned dairy processing competitors . . .

 . . . Increasing New Zealanders’ access to dairy products is a laudable motive, but there are real doubts that these proposals will do little more than hamstring our largest export earner.   

Farmers at a Fonterra shareholders’ meeting in Oamaru yesterday were united in their opposition to the proposals.

As one asked, where’s the benefit for New Zealand and New Zealanders if the changes won’t reduce the price on the domestic market and will both add to compliance costs for the company and help foreign-owned businesses export at Fonterra’s expense?

People are upset about the sale of farmland to foreigners which will have little if any impact on them. They would be much better turning their attention to these proposals which will help foreign-owned companies at the expense of our biggest exporter and do nothing to reduce the price of milk on the domestic market.

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