Comment: A robust review process is needed for the Dairy Industry Restructuring Act (DIRA), writes Rotorua/Taupo Federated Farmers Dairy Section chairman John Atkinson.
DIRA is a major part of dairy farming.
It is an important tool in the food chain that allows you to enjoy your cheese, your latte or if you're partial to it, New Zealand made dairy milk chocolate.
The Dairy Industry Restructuring Act (DIRA) was a special Act passed by the Helen Clark-led Government enabling the formation of Fonterra in 2001.
The Act sought to limit monopolisation of the New Zealand milk production industry, protecting the New Zealand domestic consumer in the areas of price and choice.
While the Act has had a few tweaks over its life, it is currently undergoing its first major review which will be considered by the parliamentary Primary Production Select Committee.
Read more from Federated Farmers here.
Again, many farmers are left wondering how the policy makers can be so misguided.
The Act forced Fonterra to provide any start-up rival company with the most important commodity, milk, at cost price.
Seventeen years later Fonterra was still being forced to supply up to 50 million litres a year to start-up companies.
Fonterra's share of New Zealand's total milk production has fallen from 96 per cent at its inception to under 83 per cent so the Act has had the effect of enabling competitors, including foreign-owned companies, to enter the market.
This has had the desired effect of giving farmers a choice as to which company they supply. It is arguable as to whether the New Zealand consumer is a lot better off.
The rival companies are also competing with Fonterra in the international market bypassing the domestic market.
It should be argued though that these companies now need to operate on their own merits.
Fonterra is a co-operative owned by 10,000 NZ farmers with all profits being returned to these owners and diffused into the New Zealand economy.
The internationally owned milk processing companies' profits do not.
It is heartening that the review is likely to recommend during the select committee those rival companies that have their own supply in excess of 30 million litres of milk will no longer need to be supplied with "cost milk" by Fonterra.
Fonterra farmers are also pleased the company is no longer bound by an open entry/exit clause.
Critically Fonterra will now be able to refuse milk supply from farmers who do not comply with environmental and animal welfare standards.
In the past Fonterra has also been forced to accept supply from large farm conversions. This will also come under review.
Other stakeholders such as Fonterra, Open Country Cheese, and Federated Farmers have supplied public submissions with "all cards on the table".
Hopefully these submissions will ensure reviewers are considering whether the DIRA review has gone far enough with changes.
DIRA's review is soon to be considered by a parliamentary committee to ensure the Act is "fit for purpose".
Farmers, and New Zealand consumers, need the Agriculture Minister's reassurance the review process has been robust.