Government proposals on raw milk regulation will help independent suppliers compete with Fonterra and not end up hitting local farmers in the pocket Prime Minister John Key believes.
The Government has released for public consultation a number of proposals including a three-season limit for independent processors who source raw milk directly from farmers, and increasing the amount of milk available to independent suppliers to about 5 per cent of Fonterra's milk supply.
Fonterra chairman Sir Henry van der Heyden has attacked the proposals, saying profits would head overseas.
"The Government's move to require more raw milk to be handed over to increasingly foreign-owned dairy companies ... will impose nearly $200 million of additional costs over the next three years alone and work against our efforts to reduce the price of milk in New Zealand," he said.
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But Mr Key said the proposals recognise "the virtual monopoly position that Fonterra enjoys in New Zealand".
He rejected the claim that local farmers would be hit while foreign-owned companies would enjoy Government subsidies.
"If Fonterra's pricing is accurate, then by definition there can't be a subsidy that's been passed on to independent processors because the right price is being paid both to Fonterra suppliers and others."