O’Connor wants broad review of Fonterra

Fonterra MilkAgriculture Minister Damien O’Connor said putting on hold changes to Fonterra’s enabling legislation will allow a broader review of New Zealand’s dairy sector and whether it is adding enough value to the nation’s biggest export commodity.

The previous National government had legislation ready to amend the Dairy Industry Restructuring Act that would have retained easy entry and exits for Fonterra’s supplier shareholders.

But it gave the co-operative discretion on accepting milk from new dairy conversions and would’ve phased out the need to sell regulated raw milk to large rival processors. Those proposals followed a Commerce Commission review triggered by Fonterra’s share of South Island milk falling below a DIRA threshold which concluded Fonterra’s market dominance still warranted regulation. The issue would have been revisited in 2020/21.

O’Connor said National’s bill “did look at some of the important issues” but “had been too gutless” on tackling others. Terms of reference for the review, which needs to be agreed by the Cabinet, will be released soon and he hoped the review will be completed within 12 months.

“I’ve taken the opportunity, given that the industry is going through some major changes and evolutions and I believe there are issues outside of the DIRA bill that need to be looked at,” he told BusinessDesk. “It’s such an important industry. It is crucial we get it right. Fonterra is our biggest and best company but it shouldn’t take for granted the advantages it has through legislation.”

First NZ Capital analyst Arie Dekker said he was “somewhat surprised” by O’Connor’s call for a new review of the dairy industry given a bill was already in place and a review recently completed.

“The Labour-led coalition clearly sees sufficient issues in dairy to prioritise a new wide-ranging review,” Dekker said.

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