A candidate for the Fonterra board, former farmer politician Malcolm Bailey, says the company's underpinning legislation should be changed "to stop independent processors having an easy ride at Fonterra's expense".
Bailey said changes were needed to the Dairy Industry Restructuring Act 2001 - the Government's key assurance that the mega-merger would
not breach the spirit of anti-trust laws.
Although Fonterra's legacy companies were able to avoid Commerce Commission scrutiny in assembling the mega co-operative, the commission is now able under the act to regulate Fonterra's behaviour in domestic markets.
To ensure the 30 small competitors are treated fairly, Fonterra is required to supply up to 400 million litres of raw milk to NZ customers at a "fair" price.
The commission can decide disputes related to the supply and pricing of raw milk to independent processors.
One tiny dairy company has already successfully won a draft determination against Fonterra's milk pricing: Independent Dairy Producers in Clevedon successfully complained that the dairy giant had charged it too much for raw milk.
And another small company, A2 Corp, said it believed Fonterra had used the act to prevent its farmers from supplying milk to A2 Corp licensees.
But Bailey said that 18 months after the merger it was "increasingly obvious" that the act was working against both Fonterra and dairy farmers.
The main problem was that Fonterra was compelled to sell a lot of raw milk to its competitors on a cost-recovery basis that disadvantaged Fonterra and discouraged farmgate competition.
Bailey said he did not believe Fonterra's competitors wanted to source their milk directly from farmers.
"The pricing formula in the legislation means Fonterra has to give them cheap milk."
- NZPA
