Some good news on dairying:
Primary Industries Minister Nathan Guy today certified that in the 2014/15 season independent dairy processors collected 22 percent of all milksolids in the South Island.
Under the Dairy Industry Restructuring Act (DIRA), the Minister is required to certify when this threshold is reached. It triggers expiry of the pro-competition DIRA provisions in the South Island by no later than 31 May 2018, unless there is legislative change before then.
“While Fonterra continues to collect more milk every season, it is encouraging to see new processors enter the market and create competitive pressure,” says Mr Guy.
“Independent processors also collected 9 percent of all milksolids in the North Island. This indicates there is increasing competition in the New Zealand dairy industry.”
Monitoring of the amount collected by independent processors is required under DIRA, which allowed for the merger of our largest dairy co-operatives to form Fonterra Co-operative Group Limited in 2001.
DIRA also contains provisions to promote the efficient operation of dairy markets in New Zealand through contestability in the farm gate and factory gate markets. These provisions are intended to expire when there is sufficient competition.
“While the percentage of milksolids collected by independent processors is one indicator of competition, it is not definitive. For this reason the Commerce Commission has been tasked with providing a report on the state of competition in the New Zealand dairy industry.
“The Commerce Commission’s report, as well as policy advice from the Ministry for Primary Industries, will help to inform my decisions as Minister and will inform the Government as it considers the results of this review.
“The Government will need to consider next year whether to promote changes to legislation to extend the duration of the pro-competition provisions, or provide a transition pathway to deregulation, or a combination of both.” . .
Information about the process, including the terms of reference for the report, key dates, and how submissions can be made, are available on the Commerce Commission website: http://www.comcom.govt.nz/regulated-industries/dairy-industry/report-on-the-state-of-competition-in-the-new-zealand-dairy-industry/
The final report is due on 29 February 2016 to the Ministers of Primary Industries and Commerce and Consumer Affairs. The Government will respond shortly thereafter by giving public notice of the Government’s policy intent.
The sooner these provisions in the DIRA go the better for Fonterra and the industry.
Under the provisions farmers can sell their shares, supply another company then go back to Fonterra which has to take them back.
DIRA has also encouraged dairying in distant areas which might not have happened had Fonterra not had to take the milk produced.
It’s had its day and competition is alive and well in the industry, at least in part not in spite of Fonterra but because of it.
No matter what the hurdles someone will see an opportunity and seize it.
Bit isn’t always better as suppliers to Tatua which is forecasting a $6 payout this season know.
Those wanting the meat industry to follow the Fonterra model should take note that the market will find a way even with legislation.
They should also note that if legislation is the answer to a business’s formation or growth you’ve almost certainly asked the wrong question.