Govt deaf to Fonterra on forced milk sales

Fonterra says the ministry's draft findings on proposals to increase how much milk the cooperative must sell milk to competitors at regulated prices is a 'backward step'. Photo/ File

Fonterra's cost of complying with special regulation is "significantly outweighed'' by the benefits of its privileged position in the New Zealand dairy market, agriculture ministry officials have concluded.

But Fonterra says the Ministry of Agriculture and Forestry's draft findings on proposals to increase how much milk the cooperative must sell milk to competitors at regulated prices is a "backward step'' that will cost it $200 million over three years.

The MAF regulatory impact statement relates to proposed amendments to the Dairy Industry Restructuring Act and Raw Milk Regulations, and recommends imposing stricter conditions on Fonterra, which produces about 96 percent of the nation's raw milk.

Among the measures touted is an increase in volume of what Fonterra has to make available to its competitors, and more comprehensive transparency of how the dairy exporter sets its prices.

"These proposal aim to ensure that the DIRA and the Raw Milk Regulations remain a durable platform for the continuing growth of a competitive and innovative dairy sector,'' Primary Industries Minister David Carter said in a statement. "The amendments will result in a regulatory regime that promotes a more transparent and efficient dairy market.''

MAF spent much of last year seeking industry feedback on tinkering with the legislation that enabled the creation of Fonterra and its dominant position in the market.

At the same time, Fonterra has been working at overhauling its capital structure, including a scheme approved by shareholders that would let the cooperative's owners trade shares among themselves, and open up outside investment through a fund exposed to its commercial performance.

In response, outgoing Fonterra chairman Henry van der Heyden tapped into growing anti-foreign investment sentiment, saying "it makes no sense for Fonterra's farmers to do the hard yards producing this milk, only to be forced to hand it over to companies who then ship it straight offshore and pocket the profits.

"The proposed changes will see windfall profits head straight into the pockets of increasingly foreign-owned dairy companies and will hinder, rather than help, New Zealanders get access to affordable milk,'' he said.