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Govt recommends milk crackdown, Fonterra unimpressed

The government has criticised Fonterra’s lack of transparency and proposed an overhaul of how it prices milk.

The government has criticised Fonterra’s lack of transparency and proposed a plan under which the dairy giant would be required to provide five percent of its raw milk to independent producers, up from three percent.

The Ministry of Agriculture and Forestry has issued a range of recommended options for amendments to the Dairy Industry Restructuring Act (the legislation that allowed for the formation of Fonterra by permitting the merger of Kiwi Co-operative Dairies Limited, the New Zealand Co-operative Dairy Company Limited and the New Zealand Dairy Board) and the Raw Milk Regulations following a government review of the way Fonterra sets its milk price.

A Parliamentary select committee has also been investigating Fonterra's milk pricing following uproar about the cost of dairy products last year.

MAF's preferred options include embedding Fonterra’s current milk price governance arrangements in legislation, requiring Fonterra to publicly disclose information about its milk price setting and introducing an annual milk price monitoring regime to be undertaken by the Commerce Commission.

Not surprisingly, Fonterra responded by saying the changes would hit consumers in the pocket with profits heading into foreign dairy companies that would ship the extra milk offshore.

Government consultation will be in the form of a draft bill and a draft set of regulations.  The bill also includes changes that would enable Fonterra to move to its proposed Trading Among Farmers (TAF) system, should it choose to.

Should Fonterra not proceed with TAF, or if it is unsuccessful, the review recommends Fonterra be required to price its shares at ‘fair value’.

Primary industries minister David Carter said Fonterra's approach was consistent with that expected in a competitive market but lacked transparency.

“These proposals 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,” said Carter.

“Importantly, the amendments will result in a regulatory regime that promotes a more transparent and efficient dairy market.”