Agriculture Minister Damien O’Connor has made a pragmatic announcement of proposed amendments to the DIRA, followed by industry consultation during May.
The presently capped Fonterra Shareholders Fund will become permanent, the milk price-setting process will be made more transparent and independent, and a dividends and retention policy introduced to ensure access to capital in future.
The DIRA amendments will also support liquidity and transparency in the trade of Fonterra shares in its restricted farmer-only market.
O’Connor said the amendments would be aimed at striking a balance between recognising the shareholders’ mandate for change and enabling the successful function of the wider dairy sector.
“Because of Fonterra’s size and influence, the government needed to take into account any potential risks to the long-term performance, innovation, sustainability, and value creation in the wider dairy industry.”
The government wants to increase its nominees to the Milk Price Panel from one to two and have ministerial approval of the chair.
It will also require Fonterra to contract out the day-to-day administration of the base milk price calculation to an external party and replace that party every four to six years.
A market maker will be introduced to the farmer-only supply share market with supressed prices to maintain a viable level of bidding and offering.
Fonterra will also need to source and publish research and analysis of its performance.
One of the most informed, Jarden head of research Arie Dekker, said enough noise has been made by the dairy industry for the government to take further scrutiny of the milk price setting mechanism.
“The Commerce Commission will be given power to make its review findings binding on Fonterra’s inputs, assumptions and processes in the base milk price manual and calculation.”
But Fonterra will retain the right to set the farm gate milk price, informed by market prices for its reference products, and that might be different from the calculated base milk price.
