Fonterra chair John Monaghan says the regulation forcing the company to pick up all milk, anywhere is no longer needed :
We will push to get rid of the open-entry and open-exit provisions of DIRA; it’s well past the use-by-date.”
Fonterra believes open-entry provision is no longer needed because the industry has become competitive.
Monaghan points out that main purpose of DIRA was to promote competition and to give farmers and Kiwis choices: today New Zealand farmers can choose from roughly 10 independent processors, only five of which are New Zealand-owned.
Farmers have more than enough options when they are looking for a company to take their milk.
They no longer need the safe-guard that forcing Fonterra to pick up milk from any farm, anywhere provided.
“Competition is a good thing for Fonterra and we believe competition is here to stay; Fonterra’s milk share has dropped from 91% to 82% because of competition.”
Monaghan says if the open-entry provision is left in place it will “wipe out the progress that’s been made.’
“Because once you have a few processors who’ve made inefficient investment decisions that only stack up with open entry, it has the potential to lead to significant excess manufacturing capacity in the industry.
“This creates a risk of a downward spiral of low-margin competition that will hold back moves up the value chain and ultimately result in business failures.”
Fonterra, and its shareholders, are forced to subsidise competitors and to prop up the inefficient ones.
Fonterra also points out that it can’t refuse a farmer joining the co-op based on environmental or animal welfare issues. . .
A dairy company must have the ability to refuse to take milk from any farm which doesn’t meet its environmental and animal welfare standards.
Forcing Fonterra to pick up milk from anywhere has led to dairy conversions in places where it isn’t environmentally sustainable.
It also adds costs which have to be borne by all shareholders.
The Dairy Industry Restructuring Act (DIRA) under which Fonterra was established is up for review now.
Changing it so the co-op is no longer forced to take milk from any and every farm that applies to supply it will bring environmental and economic gains.
It will also enable Fonterra to sanction suppliers who breach its standards.