The Clea' />

Fonterra's directors and senior executives should feel shamed by the damning results reported in the latest Clean Streams Accord report.

The Clean Streams Accord, an agreement between Fonterra and the Government, aims to ensure the country's rivers, streams and lakes are not polluted by dairy effluent.

Instead this year's report shows the exact opposite. Our waterways are increasingly running green as the level of serious non-compliance with effluent management rules by dairy farmers increases.

The Waikato region is not the worst offender - Northland takes that dubious honour. But 20 years of education and support for dairy farmers by Environment Waikato has apparently had little effect.

The percentage of Waikato dairy farms in significant non-compliance has doubled in the past year, from 10 per cent to 20 per cent. There has also been an overall decline in full compliance.

The worst offenders are deliberately pouring shed waste directly into streams and giving a one-digit gesture to the environment, their communities and the rules.

It is a similar picture in all the major dairying regions of New Zealand.

The report authors conclude that the level of non-compliance across the country is "unacceptable and will continue to be a key focus for the industry and regional councils".

Why is Fonterra's leadership not acting decisively to bring its worst suppliers into line?

Fonterra has been playing the PR game for years, setting up a sustainability team and publicly saying the right things while commercially exploiting the country's clean-green image.

But its implied message to farmers has been quite different. It is failing to take a strong stand against serial polluters and making production growth its central focus no matter what the cost.

By introducing look-good environmental programmes that it doesn't resource, by continually lobbying to push back existing environmental regulations, Fonterra indirectly encourages farmers to push the environmental boundaries as far as they can.

A prime example is the company's Effluent Improvement System (EIS). In 2003 the Clean Streams Accord set an immediate target of 100 per cent compliance with effluent management regulations.

When the system was launched six years later, Fonterra's Sustainability Leadership Team chairman Barry Harris told Environment Waikato chief executive Bob Laing that the aim of the EIS was to cut significant non-compliance by 50 per cent. That hardly counts as a bold step forward.

It's now an open question whether the company's claimed new commitment to making more effort will have any effect before serious and lasting damage is done to the country's international clean-green reputation and Fonterra's own bottom line.

New Zealand's good environmental reputation has been calculated to be worth $750 million a year.

Predictably, investors from countries like China are actively trying to buy into our dairy industry to exploit this advantage.

There can be little doubt that if Fonterra's leadership spent as much time on sustainability issues as it does on its capital restructuring and trying to encourage greater investment in the industry, these environmental problems would not be happening.

Regional councils are getting tougher. Environment Waikato, which is recognised as having the country's most effective regulatory department, has become increasingly active in prosecuting the worst repeat offenders.

This shift had been welcomed by the vast majority of farmers who justifiably feel the reputation of the whole industry is being damaged by colleagues with no respect for the environment, their communities or the rules.

The council's latest two helicopter flights to identify significant effluent breaches found no prosecutable offences, which is an indication of progress in taking out the worst cases.

But the cost to ratepayers and the environment is far higher than it would be if Fonterra was shouldering its responsibilities.

Fonterra's toughest financial sanction against its worst polluters is a $3000 fine which is refundable. For multimillion-dollar dairy farm businesses this is a slap with a wet bus ticket.

If the company chose to apply its threat to not collect milk from a wayward farm, the result would simply be more environmental damage as the milk gets tipped into the farm's presumably dysfunctional effluent system.

Worse, these actions are only considered once the regional council has identified the breach and carried out its own enforcement process, at ratepayer expense.

In areas where progress has been made, such as fencing to exclude stock from waterways, ratepayers are directly subsidising the costs.

There is no indication yet that Fonterra recognises the urgent need to show leadership. At a recent local government event, Fonterra director Malcolm Bailey was still suggesting environmental regulations should be relaxed.

At the same time, those Fonterra directors with a financial interest in overseas dairy farms must recognise that, in comparison, New Zealand's regulations are lenient.

In some US states a breach of effluent rules - which are much tougher than here - would result in the "consent to farm" being withdrawn.

The dairy industry's argument that it is essential to New Zealand's economy is correct. With tourism it is our biggest earner.

But this cannot be used as a licence to pollute at will. We don't know yet whether the water quality our communities demand can be achieved without dairy farmers taking a financial hit.

But we won't know the answer to that until Fonterra shows some genuine leadership.

On the evidence, the company is not yet serious about its environmental responsibilities.

Until that happens, the country's freshwater quality will almost certainly continue to deteriorate.

* Ian Balme is chairman of Environment Waikato's regulatory committee.