A dairy sector review by Minister of Agriculture Damien O'Connor immediately came under fire yesterday, from Fish & Game and Forest & Bird, after his terms of reference ruled out environmental issues.

In launching his legislative review yesterday, Mr O'Connor said feedback would be sought in coming months from dairy farmers and processors, consumers and the public.

That might have prompted submissions from environmental groups for consideration but, while his terms of reference initially said it was timely to review the dairy sector's environmental ''wellbeing'' after 16 years, it later said the environment was ''outside the scope'' of the review.

Mr O'Connor's announcement follows hard on the heels of Environment Minister David Parker last weekend signalling the likelihood of tougher measures which would ultimately dampen dairy intensification, which has been blamed for much waterway degradation around the country.

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Mr O'Connor's terms of reference rule out ''financial, environmental and animal health and welfare'', saying those aspects were being covered in the Ministry for Primary Industries' Farm Systems Change project.

Earlier this week, new data showed the national dairy herd had dipped 1% to 6.53million cows, while Canterbury's rose 3% to 1.31million.

Fish & Game chief executive Martin Taylor said Mr O'Connor's terms of reference were ''confused and contradictory'', given the review introduction specifically mentions dairy's environmental impact, then specifically excludes the environment as being outside the review's scope.

He said the exclusion contradicted Mr O'Connor's February 15 statement when Parliament passed the Dairy Industry Restructuring Amendment Bill, which specifically said ''the review will consider key issues facing the dairy industry, including, for example, environmental impact and land use''.

''But now he's backed away from that promise and the environment is specifically left out. We want to know why,'' Mr Taylor said.

''There's no doubt that intensive dairying is hurting the environment and its entrenched, existing practices play a significant part in causing that harm,'' Mr Taylor said.

Federated Farmers dairy chairman Chris Lewis said, when contacted, that he looked forward to ''robust discussion'' with Mr O'Connor and also within the sector.

On the question of the exclusion of the environment , Mr Lewis said health and safety and the environment were covered by other legislation.

''It's still very early days and there's a lot ahead,'' Mr Lewis said.

Mr O'Connor yesterday released the terms of reference to review the 17-year-old Dairy Industry Restructuring Act 2001 (DIRA); having rolled over the legislation in February to stop certain parts expiring.

The Act regulates Fonterra to protect the long-term interests of farmers, consumers and the wider economy.

''The review will allow us to take a strategic view of issues facing the dairy industry,'' Mr O'Connor said.

However, Forest & Bird conservation adviser Kevin Hackwell said, when contacted, the Act was driving up dairy volumes.

''DIRA drives an intensive farming model to produce volume ... in turn that encourages farmers towards poor environmental behaviour,'' he said.

He said the question of the environmental issues would be better dealt with under the Act's review, than in the Ministry for Primary Industries' Farm Systems Change project, claiming that the ministry was already ''facilitating poor environmental practice''.

Mr O'Connor said particular review issues included open entry and exit for farmers, the raw milk price-setting process, milk contestability, sector risks and costs and the incentives or disincentives for dairy to move to sustainable, higher-value production and processing.

''Only through a frank appraisal of the issues will we come to the right conclusions,'' he said.

There would be a formal consultation process in the months ahead, the review would be finished by next February - the month farmers sign up to Fonterra supply agreements for the next season - and any legislative changes would be made next year.