11 Jun 2015

Fonterra legislation 'subsidising rivals'

6:51 am on 11 June 2015

Fonterra farmers are hitting out at dairy reform laws which guarantee their rivals milk at cost price.

Dairy industry legislation is under scrutiny as Fonterra faces growing criticism for its poor performance.

Backers of the dairy co-operative said the Dairy Industry Restructuring Act (DIRA) risked further fragmentation of the industry and could weaken Fonterra.

The legislation came into force in 2001, when Fonterra was set up, because of concerns about monopoly. It required the co-operative to make up to five percent of its total milk collection available to its rivals at cost.

Farmer shareholders at the annual national agricultural show at Mystery Creek near Hamilton told Radio New Zealand it was time to scrap that rule.

Manawatu farmer James Stewart said Fonterra and its farmers should not have to subsidise rivals.

"A lot of these foreign-owned companies have a lot of capital and they can come in and take. The risk is they're coming and taking Fonterra's supply and then it weakens Fonterra as far as its supply base," he said.

"We've got a lot of competition happening now, a bit of competition's healthy but we also need a very healthy co-operative in the form of Fonterra because it is the benchmark for all the dairying industry in New Zealand."

Dairy farmer in a milking shed

Photo: AFP

The Commerce Commission has just begun a nine-month probe into competition in the dairy industry.

The review comes as Fonterra gets set to cut hundreds of support jobs in the first phase of a corporate shakeup then create hundreds of new front line jobs.

It is also grappling with disgruntled farmers who are selling their shares and switching their supply to rivals - some Chinese-backed, offering better deals.

Fonterra still has big piece of the pie

Independent dairy consultant Peter Fraser said Fonterra could not argue that it was disadvantaged when it still had an 87 percent share of the milk supply and its actual volumes had grown.

"I don't buy that argument at all because Fonterra has got its own advantages, firms have their advantages and the argument that regulated milk somehow gives firms, and particularly Chinese firms an artificial leg up is factually wrong and to be quite honest nothing more than racist," he said.

Mr Fraser said independent dairy firms were more concerned about changing rules on the artificial milk price, but he said no law change would fix Fonterra's woes.

"I think that DIRA is the least of the problems, if anything Fonterra needs to look closer to home," he said.

Federated Farmers dairy chair Andrew Hoggard said the industry agreed to the Dairy Industry Restructuring Act when Fonterra was set up and it could not be blamed for the dramas farmers were facing.

"I don't think DIRA is at the forefront of creating those dramas. You know, the core problem is simply an oversupply in the marketplace with lessened demand in the marketplace and then we do have some issues around Fonterra's performance," he said.

Mr Hoggard said the law would no longer apply when Fonterra's share of the milk supply fell below 80 percent but there was no hurry to change it.