Fonterra chairman John Monaghan called on the Government to oblige all milk processors to publicly declare the average milk price they paid to farmers.
Fonterra chairman John Monaghan called on the Government to oblige all milk processors to publicly declare the average milk price they paid to farmers.
Agriculture Minister Damien O'Connor is right off Fonterra's Christmas card list with changes he's announced to legislation governing the $16 billion dairy industry - but neither has he made friends among some of Fonterra's critics.
Fonterra farmers are "feeling ignored and frustrated", Fonterra's chairman John Monaghan was obviously surprised -and not in a good way - by the plan to have the Minister of Agriculture nominate a member of Fonterra's milk price panel, while on the flipside critics of Fonterra's heavyweight status think the Government has caved under Fonterra pressure.
Following an 18 month review of DIRA, the legislation governing the industry, O'Connor has announced proposals that will give Fonterra some relief over its obligation to accept milk from all-comers, but New Zealand's biggest company will also have greater oversight by the government.
Cabinet has signed off on O'Connor's proposals to update the 2001 legislation, which will keep the open entry and exit provisions for farmers which Fonterra had lobbied to lose.
Keeping the provisions would "manage ongoing risks arising from Fonterra's large size and scale in New Zealand's dairy markets, O'Connor said.
Instead Fonterra will get a limited exception where it can reject an application to become a new shareholding farmer or turn down an existing application for an increased supply if they can't meet Fonterra's terms of supply, or if the farm has been converted to dairying.
Eighteen years after its formation, Fonterra still controls about 80 per cent of the country's raw milk supply. As market leader it sets the farmgate milk price.
However Fonterra would be released from its obligation to supply regulated price milk to independent processors with their own supply of 30 million litres or more in a single dairy season.
Other key changes proposed include requiring Fonterra to appoint one member of its milk price panel on the government's nomination and limiting Fonterra's discretion in regard to setting a key assumption in calculating the base milk price.
DIRA would be reviewed on a 4-6 yearly basis.
Fonterra chairman John Monaghan said he was disappointed the Government did not recommend removing Fonterra's requirement to supply its farmers' milk to large, export-focused and largely foreign-backed competitors at cost price.
The proposed changes would bring "some improvements" to the dairy sector but an opportunity had been missed, he said.
He took issue with a government nominee on the milk price panel, saying this was not in the Government review discussion document following industry consultation.
"We have lots of safeguards around our milk price to make sure it's transparent, starting with an independent panel and Commerce Commission oversight. We will be looking to have a discussion with Government for the rationale around that."
Monaghan called on the Government to oblige all milk processors to publicly declare the average milk price they paid to farmers.
Agriculture Minister Damien O'Connor. Photo / Andrew Warner
Fonterra farmer advocate, the Fonterra Shareholders' Council, said the proposed changes to the milk price regime were of "deep concern".
"Today our farmers will be feeling ignored and frustrated," the council said in a statement.
"Despite their efforts to engage in meaningful consultation....their voice has largely gone unheard while we continue to kick the can down the road with respect to essential change to this important piece of legislation."
Fonterra watcher, Massey University's Dr James Lockhart, said the proposal to allow Fonterra to refuse milk supply in some circumstances was concerning and would enable Fonterra "to be able to exercise some sort of control for a vast range of reasons, to price discriminate".
A government nominee for the milk price panel was good, providing it "is not a patsy but someone committed to Fonterra and someone who can understand global trends."
Massey University business school senior lecturer Dr James Lockhart.
Another close Fonterra observer, economist Peter Fraser said the proposed legislation changes were disappointing. The Government "has caved under pressure from Fonterra yet again", he said.
"This review really only needed to do two things. Not stuff up what is working well, which is regulated milk and open entry and exit, and fix what isn't, which is Fonterra's manipulation of the milk price.
"This review is actually a step backwards. It's stuffed up the former and done nothing meaningful to fix the latter."
The changes will require a select committee hearing and new legislation which will be included in this year's parliamentary programme.
The country's second biggest dairy company Open Country, and listed processor Synlait said they had yet to study the Government's changes.
