A law change means Fonterra's muscle in New Zealand's dairy markets will continue to be managed and the way is cleared for a new Government review of the dairy industry.

Parliament has passed the Dairy Industry Restructure Amendment Bill which means the efficiency and contestibility provisions of the Act, which enabled the formation of Fonterra in 2001 from a major industry merger, managed the resulting single company, and degulated dairy exporting, will no longer expire in the South Island on May 31.

Fonterra, a cooperative which collects 82 per cent of the country's raw milk, could have been freed from DIRA restrictions in the South Island this year because competitors which have emerged since 2001 now have enough of a milk market share to legislatively deem that market competitive.

But the Commerce Commission in 2016 concluded competition wasn't sufficient to remove the DIRA provisions.


Minister of Agriculture Damien O'Connor said it was not in the interests of farmers, dairy manufacturers, consumers or the New Zealand economy to let key DIRA provisions expire in the South Island.

Tinkering with the Act would not answer some of the bigger questions facing the industry, he said.

The Government would now start a comprehensive review of the industry.
"By rolling over the Act and committing ourselves to a wide-ranging review we are taking a considered and strategic approach to the changing needs of the dairy industry," O'Connor said.

Terms of reference for the review, to be led by the Ministry for Primary Industries, would be published in the first half of the year.

O'Connor earlier told the Business Herald the review would look at pasture versus intensive farming, corporate versus family farming and environmental matters as well as competition and capacity.

Fonterra, owned by supplying dairy farmers and with listed units on the sharemarket, has been approached for comment.

Industry-good body DairyNZ said it was already working with the new Government and welcomed continued conversations and partnerships.

"These conversations started with the Dairy Tomorrow Strategy that looks to the future of the dairy sector and the role it can play in helping New Zealand," said chief executive Tim Mackle.