Comment: Has the Government gone far enough with DIRA?

Federated Farmers Dairy Policy Advisor Ann Thompson. Photo / Supplied

Comment: , writes Federated Farmers Dairy Policy Advisor Ann Thompson

There's more to the price of milk than what is listed on the shelf.

Agriculture Minister Damien O'Connor has announced proposed changes to the Dairy Industry Restructuring Act (DIRA).

He's on the right track, but has he gone far enough along it?

Federated Farmers doesn't think so in one aspect that affects all New Zealand's dairy farmers – at the farm gate.

Surely the sector is mature enough to allow Fonterra more say in who gets to belong to the co-op and supply it with milk and who doesn't.

Read more from Federated Farmers here.

While Fonterra, if the proposed changes go through the Parliamentary process unscathed, will be able to say no to the few farmers who are very poor performers and to new dairy farms, it will still have to pick up milk from those who are playing the field, swinging from one processor to the next.

While we don't support the complete removal of the open entry provisions of the DIRA thereby giving Fonterra free rein to say no to anyone, we do support a change to the current requirement.

As shareholding is tied to the shareholder and not to the land there would be no guarantee that a new owner of a Fonterra supplying farm would still be able to hitch up with Fonterra if the open entry provisions fell away.

This could have significant financial implications for existing dairy farmers.

Free rein could also see Fonterra deciding the last farm down the road or over the hill wasn't worth the effort.

Feds proposed in its submission that, in order to give shareholders some certainty, Fonterra would be obliged to pick up milk from its current footprint.

The other opportunity lost is at the factory gate through proposed new Raw Milk Regulations.

These were set up in 2001 to enable new dairy processors to buy raw milk from Fonterra on regulated terms during their initial establishment phase.

This was aimed at developing competition for farmers' milk and for consumer choice in the domestic market.

Under the proposed changes, processors that have their own supply, whether from farmers or through a wholesale process, of at least 30 million litres won't be able to buy milk off Fonterra at the regulated price. But those that have less, or no own supply, are still able to buy this milk for as long as they want.

This gives no incentive whatsoever to get them to seek supply on commercial terms from other processors or suppliers.

While these processors are a tiny component of the dairy sector, leaving them in an artificial space where they do not need to go to the market to buy this milk leaves New Zealand farmers with the conclusion they are supporting processors that can't, or won't, make their own way in the world.

It is also notable that practically all of this milk heads offshore, providing no benefit to domestic consumers.

We call on Minister O'Connor to go further on both of these issues, and we are looking forward to the Bill to see if he has.

If not, we will be pushing for it at the Select Committee stage.