However, anyone who converts land use to dairying after the law has been changed and supplies an independent processor and then wants to switch to Fonterra would not be considered as a new conversion under these changes. Even if you are a current Fonterra supplier, think about how this will affect your plans. Do you agree?
OPEN ENTRY PROVISIONS
With the DIRA before Parliament again, we are aware that some in the industry want further changes to be made and want Fonterra to be given the option to refuse to accept milk from any new supplier.
This will essentially wipe the 'open entry' clause in the Act. As all dairy farmers know, Fonterra is currently required to accept all milk offered, with limited exceptions to do with minimum volume and transport costs.
So, how do you define a 'new' supplier? The Act defines a new supplier as a business entity that was not a shareholding supplier of Fonterra in the previous season. This includes farms that have been supplying another processor, or a new owner of a farm currently supplying Fonterra. The new supplier definition also applies to family succession. The important thing to remember is that the 'new' supply refers to the farmer not just the farm.
Federated Farmers is concerned that the full definition of 'new' supply is not widely understood. The big question is whether there is a view among farmers that Fonterra should be given the option to refuse supply from all new suppliers as defined in the Act, or just some of them, or just new conversions, or should the rule remain as it stands. We are eager to hear your feedback.
There are some further clauses in the DIRA which should interest dairy farmers.
TRANSPORT EXCEPTION
Currently the DIRA states that Fonterra may reject a dairy farmer's request to join the co-op 'if the cost of transporting the milk of the new entrant exceeds the highest cost of transporting another shareholding farmer's milk'. If Fonterra does chose to accept them, they are entitled to charge a 'differential' to cover the increased costs associated with transporting milk the extra distance.
ONE-THIRD CONTRACTING RULE
This rule requires that a third of the contracts within a 160km area have to expire annually. This is designed to stop Fonterra from 'locking up' an area through long-term supply contracts, preventing shareholders from switching to another processor.
POST DIRA
We encourage all dairy farmers to think about a post DIRA era, as the next review, due in 2020, could lead to it falling away completely. Farmers need to fully understand all the 'protections' the DIRA gives and decide which provide more hindrance than protection. Is there some other way of keeping the good bits of the DIRA without setting it in law?
A good example of protection would be differentials, as discussed above. If DIRA goes, then the differentials could be used more widely. Federated Farmers believes the time to discuss that is now, not once the law has gone.
TALK IT THROUGH
Federated Farmers wants all Fonterra suppliers to discuss these issues now with their Fonterra Shareholders' Councillor, Fonterra Board members and also with those who farmed before 2001 when Fonterra was formed.
These experienced farmers will have some idea of what the free market looks like, because they lived it before. Except, for some, there was competition down the next valley and so they could more easily switch supply.
OTHER THINGS IN THE BILL
The Bill also deals with the New Zealand Dairy Core Database, reflecting the changes in responsibility for the management of this important tool.
The Bill can be found on the Parliamentary website www.legislation.govt.nz/bill/government/2017/0242/latest/DLM7120814.html).
Supporting material can be found on the Ministry for Primary Industries website: www.mpi.govt.nz/law-and-policy/legal-overviews/primary-production/dairy-industry-restructuring-act/. Federated Farmers will be making a submission on this Bill.
