KEY POINTS:
It's as good as official: Fonterra is going to have to learn to share.
While the end of its exclusive hold on an export quota trade worth hundreds of millions of dollars was always written in the stars, the Government has finally made it clear what lies beyond
the horizon - and it's not exclusivity.
A cluster of milky moons can now move out of Fonterra's shadow and bask in the light of the preferential tariff arrangements they have coveted for so long.
However, this new democracy is more electoral college-style than one man, one vote. The quotas are to be divvied up by how much milk you bring to the party - and Fonterra has more than 90 per cent of the volume.
And the policy framework that will form an amendment to the act that set up Fonterra is cold comfort for the smallest of the small - such as organic farms - which don't have a shot at supplying the 14 million litres minimum needed to qualify under the new rules.
Instead it could be just a political gesture to safeguard New Zealand's access to other, more lucrative quota markets.
Last year a European Court of Justice ruling effectively called for an end to Fonterra's control of the quota butter trade. In addition to agreeing to give other European importers a slice of the action, the compromise involved a promised review of the Dairy Industry Restructuring Act.
The trade is a hangover from special access conditions for New Zealand negotiated as part of Britain's entry to the European Union, which gives our imports access at a preferential tariff, allowing bigger profits than otherwise available.
"Part of the deal on settling the butter quota problem ... [was] that we were reviewing the [Dairy Industry Restructuring Act 2001] in 2007 and the review would be a serious review - not just a once-over-lightly," says Agriculture Minister Jim Anderton.
"To say that they [the Europeans] are watching this closely would be a masterly piece of understatement.
"They were looking for this review ... to see whether we're serious about there being some competitive elements to the New Zealand dairy industry vis-a-vis Fonterra."
The Europeans - rightly or wrongly - would have taken failure to change as more proof of Fonterra's monopoly position, Anderton said.
As such accusations were central to the court ruling that suspended the butter trade, Anderton argues it's been important to address that issue for the sake of other quota trade more important than dairy, such as European meat quotas.
New Zealand exports more than 77,000 tonnes of quota butter to the EU at a low tariff, but more than 200,000 tonnes of lamb to Europe and a similar amount of beef to the United States.
"This is a high-risk game and we don't want to put at risk valuable quota systems in the EU or US by giving ammunition to sometimes-protective and defensive positions by our competitors.
"Some of these countries have double standards [but] they have the ability to hurt us if their perception becomes their reality."
Anderton said it was important not to give them any evidence that the Government was protecting Fonterra unreasonably.
"We have a lot of other quota areas - like meat in Europe - at stake here worth a whole lot more than any of the dairy quotas we've got, to be honest.
"It's not a matter of sacrificing one for the other, but it's not a matter of throwing away advantages in one because of anything silly you've done."
Rental redundancy....
If ever there was a time for any perceived "favouritism" towards Fonterra to be eliminated, then it is when the price of milk has gone up to such an extent that the "rents" achieved from the quota trade pale in comparison.
Rents - the extra margin available because of the lower tariffs generally faced by products exported under quotas - added 4c/kg of milk solids or $48 million to Fonterra's payout last season, down from $160 million in 2002-2003. And Anderton says it will be just $20 million maximum this season.
He says two factors overwhelm any benefits to be had from the quota rent - fluctuations in the milk commodity price and the exchange rate.
"If you take the exchange rate fluctuations, you only have to go up 1c and that's something like 8c/kg of milk solids."
He says that with the price of milk solids having gone up by something like $1.32/kg in around six months, the 4c the rents added to Fonterra's payout as profit was insignificant.
"Their gains from rents are dwarfed by these other considerations. If the milk price as it is is sustained for any length of time it is just derisory in terms of its effect versus the effect of these quota rents."
Chinese whispers
China's widening food safety scandal could be about to sour New Zealand's dairy industry.
Tainted exports from the People's Republic have been blamed for a spate of pet deaths in the US, and toothpaste sent to the Dominican Republic was recently found to contain a lethal chemical. The scandal has put pressure on Chinese authorities to beef up quality control to avoid an economic disaster.
A New Zealand company that imports magnesium chloride from China for use in the dairy industry says his Chinese supplier has alerted him to a temporary ban on exports of food additives, while worried officials subject processing facilities to stringent inspections in an effort to claw back their damaged reputation.
Magnesium supplements are used in the dairy industry to counter a potentially fatal deficiency that commonly strikes cows in winter and spring, and affects milk production.
The source, who did not wish to be named, said New Zealand's dairy industry gets 90 per cent of its magnesium from China.
"We have now confirmed that this has been a reaction to the pet food incident in the US where a number of dogs died from [eating] Chinese exported pet food," he said.
The Chinese exporter said in an email that it might be some time before it could recommence exporting feed-grade magnesium chloride to New Zealand.
Ministry of Agriculture and Forestry officials could not confirm any such action.
