Fonterra, as the country's biggest collector of milk, currently qualifies for the lion's share of dairy export quota allocation.
Fonterra, as the country's biggest collector of milk, currently qualifies for the lion's share of dairy export quota allocation.
Dairy heavyweight Fonterra was the only New Zealand dairy exporter which wanted to keep the status quo for dairy export quota eligibility during a major review of the outdated system.
This is revealed in Ministry for Primary Industry (MPI) documents released to the Herald under the Official Information Act.
The documents, MPI briefings to Agriculture Minister Todd McClay, say the review found export quota was un-utilised and the system limited the extent to which a more diverse range of New Zealand dairy businesses could enter quota markets and grow their export base.
Dairy generated nearly $26 billion in export revenue in 2023, accounting for around one in every four export dollars earned.
The quota system administers the allocation of export quota for the US, UK, EU, Japan and the Dominican Republic. Quotas enable prescribed quantities of dairy products to receive beneficial tariff rates in these markets.
Recommendations from the review, the first in 17 years, urged three major changes to improve the allocation system: changing its basis from the volume of milk solids collected to export history; a new regulation enabling portions of quota to be reserved for otherwise ineligible exporters or those only eligible for small volumes; and giving access to allocation to non-cow animal dairy exporters, such as goat and sheep milk producers, on the same terms as cow dairy exporters.
Agriculture Minister Todd McClay has agreed to progress the work on the former Government's change proposals for a dairy quota system but no decisions have been made. Photo / George Heard
The previous Labour Government Cabinet directed work to start on a draft bill to amend the Dairy Industry Restructuring Act (DIRA) accordingly, shortly before it was voted out of office last year.
The case for change now rests with the new coalition Government.
MPI told the Herald McClay had agreed to progress work on changes, though Cabinet had yet to consider any proposals, or make any related decisions. If Cabinet agreed to proceed with changes, the earliest they could be in place was next year for 2026 allocations.
The review found 10 New Zealand dairy processors met the requirements for a share of quota.
But only half of them typically applied for the entitlement each year. Many other businesses which also exported dairy products were not eligible because they did not collect milk from farmers. Non-bovine dairy product exporters were not eligible for quota, despite some trade agreements allowing these products to be exported under quota, the MPI papers said.
“Dairy exporters that MPI engaged with and who submitted during public consultation were in favour of changing eligibility away from the status quo, with the exception of Fonterra.
“Although dairy exporters did not have a single preferred option for change, the feedback received provided sufficient information to inform the development of the recommended changes.
“While Fonterra’s preference was to retain the status quo, it preferred changing the basis of allocation to export history over the other options.”
Fonterra is New Zealand’s biggest business. A farmer-owned co-operative, it still has around 78 per cent of the country’s raw milk solids production and so claims the lion’s share of quota under the current system.
Asked why it wanted to keep the status quo, the company in a statement said: “Allocation of dairy export quota... is an important part of Fonterra’s value add strategy. These allocations ensure that we are able to leverage our sustainability and innovation credentials in key markets, and maximise returns to the New Zealand economy.
“In our public consultation submission, in response to a specific question, Fonterra expressed a general preference to maintain the current quota allocation model. This model allocates dairy export quota on the basis of milk solids collected from dairy farmers in New Zealand,” the company added.
“This preference was on the basis that the current model is transparent, simple, fair and predictable.
“Our submission was also clear that we recognised the current DIRA allocation system does not provide for new entrants and other companies who do not collect at least 0.1 per cent of New Zealand milk solids to be granted access to New Zealand’s designated quota rights.
“We, therefore, expressed clearly and upfront that Fonterra was willing to work constructively with others to develop a solution that would provide access to certain quotas for a wider range of companies.”
Fonterra says the current quota allocation system is simple, fair and predictable.
The MPI papers said the recommended changes would cause some exporters’ entitlements to decrease from the status quo.
“For some exporters like Fonterra, they may see increases in entitlements for some products and decreases in others. MPI considers that the benefits from widening eligibility outweigh these costs.”
Quota would still be able to be traded among exporters as under the status quo. But there would no longer be restrictions on who could participate in quota trade.
Recently released allocations for milk powder to the EU under the FTA show Fonterra with a 2,798,879 per kilogram share of the 2024 year quota; Tatua Co-operative Dairy Company with 28,132kg; Open Country Dairy 317,054kg; Synlait Milk 157,853kg; Miraka 45,072kg. The total allocated was 3,346,990kg.
For cheese exports to the EU under WTO, Fonterra has 5,043,350kg; Tatua 50,691kg; Open Country 571,305kg; Synlait 284,438kg; Miraka 81,216kg. The total cheese allocation was 6,031,000kg.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
