Saturday, December 2, 2023

Why DIRA needs to change

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Changes to the Dairy Industry Restructuring Act are needed to help New Zealand achieve its vision for the future of the industry Fonterra chairman John Monaghan says.
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THE Dairy Industry Restructuring Act (DIRA) has been critical to the performance of the dairy industry since it passed into law in 2001. 

It enabled the formation of Fonterra and has seen dairy exports grow in value from $7.4 billion 2001 to $18.1b for the year ended June 2019. 

The legislation is under review. It’s time it was modernised to reflect the realities of the dairy industry today and into the future. 

The purpose of the initial DIRA legislation was to establish a major New Zealand owned dairy co-operative with the scale to compete in the global market. 

In doing so, it was recognised some restrictions were required because of the associated domestic market dominance of that new co-operative. 

Farmers needed options and protections when deciding who to supply their milk to and domestic consumers needed options when deciding which products to buy.

Eighteen years after the passage of the original legislation there are 10 other competitors operating 15 manufacturing sites across the country. 

Fonterra’s market share has reduced from 96% in 2001 to about 82% 2018. 

In regions such as Canterbury, Waikato and Southland, farmers have multiple options about which processor they wish to supply.

As planned, DIRA has successfully helped the competition thrive. 

From the 2002 to 2019 season, independent processors’ collections increased by about 830% compared to just a 37% increase in Fonterra’s collections. 

Last month Fonterra chief executive Miles Hurrell and I were in front of a select committee to put forward Fonterra’s case for changes to DIRA. 

In a number of ways DIRA is tied into the conversation on fresh water and climate change.

Changes to DIRA will help NZ achieve its vision for the future of the industry. That includes goals for improving fresh water quality, maintaining our position as the world’s most emissions-efficient producer of dairy, ethical animal welfare standards and protecting the dairy industry’s significant contribution to the NZ economy. 

We’re calling for the end of the open entry and exit provisions that effectively mean Fonterra has to accept any farmer into the co-op, regardless of their standards, and want the right to decline all applications to supply our co-op. 

We need greater control over where we invest our capital to ensure we can return the greatest value to our farmers, unit holders and NZ. 

We’re also asking that the Bill gives us the right to say no to milk from new conversions. 

That will send a message to those who financially support and enable dairy conversions on environmentally sensitive land. 

Dairy farming must operate only within recognised environmental limits.

Common sense tells us that we as NZ dairy farmers shouldn’t have to give our milk, effectively at cost, to foreign-backed competitors focused on exports.

The proposed legislation continues to help them into the market by providing regulated milk supply with no offsetting benefit to NZ. 

We are asking the Government to stop forcing us to give our milk to independent processors who have a capacity to process more than 30 million litres a year and who export more than 20% of their processed volume. 

If export-focused companies want to be part of our local industry they should seek their own milk supply. 

We should not have to carry the risk for overseas processors.

Finally, like us, all milk processors should be required to publish the average price they pay farmers, the key parameters of their milk price and examples showing the payout farmers would receive for different parameters. 

There are no negative outcomes from farmers having clear and consistent information from which to compare processors.

Fonterra is a farmer-owned NZ co-operative, here for generations, and taking the very best of Aotearoa to the world. 

However, our industry must continue evolving to remain economically and environmentally sustainable. 

Our industry has been built on more than 150 years of hard work, adaptation and innovation. 

We’re asking the Government to consider the structure of the dairy industry NZ wants for its children. 

NZ farmers are the best in the world and they deserve legislation that ensures they have the best opportunity to remain this way.

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