'They need some discipline': Agriculture Minister defends keeping restrictions on Fonterra

The Agriculture Minister has defended the outcome of a review into current dairy industry laws, saying dairy giant Fonterra still required discipline.

The Dairy Industry Restructuring Act (DIRA) has been reviewed for the first time since it was introduced in 2001 for the creation of Fonterra.

Fonterra said the changes in the review would bring some improvements to the sector, but represented a missed opportunity to better support New Zealand.

Chairman John Monaghan said the co-op was disappointed the Government did not recommend removing the requirement to supply Fonterra farmers' milk to large, export-focused businesses altogether.

The review meant there would also be more regulation over how Fonterra sets its milk price.

It recommended that the Minister of Agriculture would be able to nominate one person to sit on Fonterra's Milk Price Panel - something Fonterra said "was noted with interest."

Damien O'Connor said new management have an opportunity build farmer confidence.
Damien O'Connor said new management have an opportunity build farmer confidence. Photo credit: Newshub

However Minister Damien O'Connor defended leaving the requirements in place.

"Fonterra want everything their own way, that's understandable," he said. 

"They are our biggest and best company and I absolutely support them, but they need some discipline."

He said it was important to make sure the board worked well, and managed the farmers capital and company well.

Fonterra was disappointed with some aspects of the review.
Fonterra was disappointed with some aspects of the review. Photo credit: Supplied

"We need to make sure that the managers in that company are doing the right thing. There are plenty of examples where both the board and management have really screwed up."

However he said things were looking positive.

"I think the new board and new management have an opportunity to build the confidence back off their farmers and to show that they have a really good strategy going forward."

He defended the DIRA legislation and said it was not designed to tell Fonterra what to do or what not to do.

"It's a framework that allows Fonterra to prosper but does allow other companies and other New Zealanders who have got good ideas in the dairy industry to get a good start."

O'Connor said normally a company the size of Fonterra would be overseen by the Commerce Act.

"They've been given some free reign, exclusive of the Commerce Act but for that privilege, they had to provide a few opportunities for new people, and we've just reviewed that, made some changes, and I think on balance it's about right."

 Key changes to DIRA and raw milk regulations:

    Retain the open entry and exit provisions, with qualifications, to manage ongoing risks arising from Fonterra's large size and scale in New Zealand dairy markets.
  • Allow Fonterra to refuse milk supply from farmers in circumstances where milk is not compliant or unlikely to comply with Fonterra's terms and standards of supply or is supplied from newly converted dairy farms.
  • Clarify that Fonterra's terms of supply can relate to, and price differentiate on the basis of, various on-farm performance matters, including environmental, animal welfare, climate change and other sustainability standards.
  • Limit Fonterra's discretion in regard to setting a key assumption in calculating the base milk price, the asset beta.
  • The DIRA shall be reviewed on a four to six-yearly basis, to provide regulatory certainty.
  • Require Fonterra to appoint one member of its Milk Price Panel on the nomination of the Minister of Agriculture.
  • Remove the requirement for Fonterra to supply regulated milk to independent processors with their own supply of 30 million litres or more in a single season.
  • Update the terms on which Fonterra supplies regulated milk to Goodman Fielder for the benefit of domestic consumers.

Read full details of the review here