Independent dairy producers more competitive

Independent processors collected 22 percent of all milk solids in the South Island and 9 percent in the North Island, triggering the expiry of pro-competition provisions under DIRA. Photo / NZME

Fonterra's market share in the South Island has slipped beneath the 80 per cent threshold specified in its enabling legislation, the Dairy Industry Restructuring Act (DIRA), the Minister for Primary Industries, Nathan Guy said.

Guy said in a statement that in the 2014/5 season, independent dairy processors collected 22 percent of all milksolids in the South Island and nine per cent in the North.

Under 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 May 31, 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," Guy said in a statement.
Monitoring of the amount collected by independent processors is required under DIRA, which allowed Fonterra to become established 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," Guy said.

Against that background, the Commerce Commission would provide a report on the state of competition in the New Zealand dairy industry, to inform the Government.

"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," he said.

The final report is due on February 19, 2016, after which the Government would will give notice of its intent, Guy said.