Hon DAVID CARTER (Minister for Primary Industries)
: I move,
That the Dairy Industry Restructuring Amendment Bill be now read a third time. The bill was tabled in the House in March this year. It had its first reading on 3 April 2012, after which it was referred to the Primary Production Committee for consideration. The select committee reported the bill back to the House on 6 June, and the bill has now had its second reading and passed through the Committee stage.
The Dairy Industry Restructuring Act, or DIRA, promotes the efficient operation of New Zealand’s dairy markets, ensuring freedom for dairy farmers to choose the processor of their milk. The contestability of milk supply provides incentives for all dairy companies to seek to innovate and to operate efficiently so that the New Zealand dairy industry can reach its full potential. The bill is about ensuring that this contestability continues, but it also responds to a number of developments since the Dairy Industry Restructuring Act was put in place over a decade ago. This bill will ensure that that Act remains fit for purpose.
Fonterra initiated discussions with the Government in 2009 with a proposal to introduce Trading Among Farmers, or TAF. Fonterra was concerned about the instability of its balance sheet under the Act’s existing share issue and redemption requirements. Importantly, the ultimate decision on whether to proceed or not to proceed with Trading Among Farmers rested with Fonterra and its shareholders, and not with the Government. This decision was put to a vote last month, at which 66.45 percent of Fonterra shareholders voted in favour of Trading Among Farmers proceeding. This is the mandate on which Fonterra has said it is proposing to proceed with Trading Among Farmers. The Government’s job, therefore, is to complete the legislation process and enable Trading Among Farmers to proceed.
This bill ensures that when Fonterra launches Trading Among Farmers, farmers’ freedom of entry into and exit from Fonterra is preserved. This in turn ensures that New Zealand’s dairy markets remain contestable, because this creates the right environment for efficiency, for innovation, and for growth. If Trading Among Farmers does not happen, or if Trading Among Farmers is wound up, the bill requires Fonterra to value its shares at a full fair value. This is also important to ensure the freedom of entry into and exit from Fonterra, because I strongly believe that farmers who decide to move on from Fonterra are entitled to a fair price. Further, it will ensure contestability of the
farm-gate milk price. This is why, unlike the share price of any other cooperative, Fonterra’s share price is a public policy concern.
Finally, the bill introduces a new regime to increase transparency in the way Fonterra sets its farm-gate milk price, and provides confidence that the farm-gate milk price is consistent with delivering a contestable market. Due to Fonterra’s dominance, Fonterra’s farm-gate milk price is effectively the price that all processors must pay in order to attract milk supply from farmers. Confidence and transparency are therefore crucial. If the farm-gate milk price is consistent with the outcomes in a contestable market, then this means the price should be efficient, which in turn means that both Fonterra and its competitors will have the incentives to operate efficiently and to innovate. This continual endeavour for improvement brings benefits to the entire dairy industry, and therefore, in turn, to all New Zealanders.
In 2001 the National Party, then in Opposition, recognised the importance of cross-party support on such significant legislation for the dairy industry, the Dairy Industry Restructuring Act, and we voted accordingly. It is unfortunate and a personal disappointment to me that the Labour Party has decided that playing politics is more important than continuing this tradition of cross-party support for the Dairy Industry Restructuring Act legislation. I am well aware that opposition to the Dairy Industry Restructuring Amendment Bill is actually not unanimous within the Labour Party caucus. However, on balance, the decision has been made to stand beside the primary industries spokesman, Damien O’Connor, who, having not fully understood the legislation, has continued to paint himself into a corner over the last few months.
This legislation does not mean the end of ownership of the Fonterra cooperative by its shareholders, as Mr O’Connor stated in the House last week. He should give more credit to the intelligence of Fonterra dairy farmers than that. The legislation certainly does not give Mr Damien O’Connor any reason to accuse the Fonterra chairman of lying and stating that he, Mr O’Connor, did not trust Fonterra. That was the language used by Damien O’Connor, which should never have been used in this Parliament. I can only hope that the Labour Party leadership sees past these negative politics, and in the future does the right thing by providing this bill with the cross-party support that the original Dairy Industry Restructuring Act enjoyed.
This bill is crucial to the ongoing growth of New Zealand’s dairy sector, and therefore to the ongoing economic prosperity of all New Zealanders. I commend this bill to the House.
Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman)
: I rise to take the opportunity to put Labour’s position on this bill, the Dairy Industry Restructuring Amendment Bill. It is with some sadness that we cannot support this bill. We have a proud history in dairy industry legislation, going back from the 1930s. We formed Fonterra when we last came into Government, and we would have liked to vote for this bill. In the end, although there has been much discussion and good discussion within the Labour Party caucus, there is the refusal by the Government to support a legislated cap on the fund size. This is a fund that Fonterra itself has said is critical in terms of its total size, critical to the management pressures and direction of Fonterra, but the Government refuses to put in place a legislated cap.
The Minister for Primary Industries went through the timing of the bill. It was a rushed process. Thankfully, through the Government’s own mismanagement, it allowed farmers to vote on Trading Among Farmers before the legislation had progressed through the House, and for that, I guess, we welcome the National Government’s incompetence.
The outcome of that vote was confusing. The Minister himself misleads the House by saying that 66.45 percent of shareholders voted for Trading Among Farmers. No, the
vote based on
milksolids was 66.45 percent of those who voted. The estimates—and Fonterra refuses to give the figures on this—are that, of those farmers who voted, about 50 percent voted for and about 50 percent voted against. That is not a clear mandate, and that is why Labour is concerned that the Government’s position on this has been to refuse to put in place a legislative protection for what is the largest and the most successful company—and, arguably, industry—in this country, bar none, owned for the most part by New Zealand farmers, which is something that we should be quite proud of.
Fonterra itself says that it will manage the investment fund. This is the opportunity for non-farmers to buy units in our biggest company, at about 7 to 12 percent of total share capital value. New Zealand Exchange’s outgoing Chief Executive Officer, Mark Weldon, commented that until the fund actually gets to 20 percent it is not going to operate efficiently. My concern is that tension that will be there from day one is unlikely to be managed by the board or by farmers, and without a legislated cap it could very well see that unit fund blow out to a figure that is beyond critical and that is beyond the level that Fonterra itself says is wise and prudent in terms of the long-term objectives of a cooperative company.
This is an unusual company. I acknowledge here and now that in 2001, when we put Fonterra in place, we established a fair value share for a cooperative that in itself was unusual. We did put in place open entry and open exit provisions, which brought discipline on management to ensure it held the confidence of farmer-supplier shareholders. We are changing that through this legislation, and that is the risk. In spite of the global financial crisis, this company has grown, has improved its equity, and has come back from a near crisis on its balance sheet in 2007 to a position of strength under the existing structure. This bill is about to change that.
It is important that farmers realise exactly what is going on. Yes, in the House I did refer to Sir Henry van
derHeyden’s statement in 2010 in a consultation document that “Trading Among Farmers gets rid of redemption risk once and for all, which makes every farmer’s investment in Fonterra more secure.” That is a lie. I repeat that statement because in the due diligence report released in 2012 a summary of quite a lot of work that went on states “balance sheet cover of NZ$120-200m required under TAF to manage Fund size is significantly lower than the NZ$500-850m of cover required to manage redemption risk …”, the point being that redemption risk remains with the company at a lower level.
But what we have through the passage of this bill is some added risks to the company. We had an independent adviser to the Primary Production Committee. The advisers that came from the Ministry of Economic Development and from the Ministry for Primary Industries were competition advisers. They were skilled in the area of contestability, competition, and commerce law. They did not understand cooperatives and their basic objectives. Our independent adviser, James Morrison, in his report to the committee says: “This investor-supplier conflict of interests is why every cooperative that has introduced external investors to its capital structure has either eventually demutualised, or reverted back to a full cooperative by excluding the external investors”.
Farmers should be under no illusion that this legislation is going to protect and strengthen their cooperative. There are pressures that will build—ultimately, I think, from within the cooperative—under difficult times of trading and with international prices coming down, and the concern is that bankers may force farmers to seek full value in their share. In fact, in terms of the fall-back provisions in the bill around share valuation, there was much debate around proposed new section 77A in clause 7. That debate was whether this cooperative should be driven by cooperative principles, which
are basically nominal value shareholding. It can be a change in nominal value, but the fair value provisions and concept that we introduced in 2001 are faulty. What this bill had attempted to do was to change the fair value provisions in the absence of Trading Among Farmers.
Indeed, without the endorsement of the Fonterra Shareholders’ Council, Trading Among Farmers cannot be introduced. There is a legal requirement for the Fonterra Shareholders’ Council—approximately 35 shareholding farmers, who have the responsibility to provide oversight and a watchdog process for the Fonterra board—to sign off and endorse this concept. It has not done so yet. It needs to be fully aware that we have to have a fair process for the establishment of the value of the share if the council does not endorse Trading Among Farmers, and, indeed, if through this legislation the fund was to be wound up. What we have done in this bill is try to compromise on the tension between officials who wanted full value shareholding—full value shares, open value shares in Fonterra—and the intention of the select committee, which was to have a cooperative value share. I am sure the chairman of the committee will outline that even further.
The last provisions in here are the milk price provisions—that is, we have a raw milk price that enables independent competitors to come and buy milk on a contestable basis from other farms, and to get on and innovate. We welcome that and we want that. A complex milk price manual and milk price panel arrangement will be set up to try to do the best for Fonterra and the dairy industry.
In summary, Labour would like to support this bill, but we choose not to on the basis that the Government has refused to put in a basic legislative protection for what is the single biggest and most successful company in this country. We wonder why this is happening. John Key is on record saying that he would like to see Fonterra floated; we hope that does not happen. We have seen shares in numerous entities across this country—we will see them in State-owned enterprises—go into overseas ownership. Control will eventually drift into overseas ownership, and we do not want that to happen for Fonterra, our single biggest company. We hope that the board of Fonterra has the best intentions to provide and maximise the return to farmer shareholders, not to provide and maximise the return to the outside investors who will now be part of Fonterra, New Zealand’s biggest cooperative company.
Hon JOHN BANKS (Leader—ACT)
: I rise on behalf of the ACT Party to support the third reading of the Dairy Industry Restructuring Amendment Bill. I want to thank the Minister for Primary Industries, David Carter, for making the officials available to me and my officials at all times, and I acknowledge his constructive engagement on the contestability issue. The contestability issue is dear to the heart of the ACT Party and what we stand for. I want to give praise and credit for the work done by the chairman of the Primary Production Committee, the member of Parliament from Taranaki - King Country—a long-serving member of this House—and the good work that he did on improving this bill after taking some advice from me and my officials.
Let me record again for the public record my interests in the dairy industry, particularly in the milk-processing business. I also acknowledge the dairy industry representatives who came to see me. I have nothing but praise for the chairman of Fonterra and his leadership, and I would not have the temerity of the Labour Party representative to give him gratuitous insults under the cover of this House.
When I think of farmers, Mr Speaker, I think of you. When I think of farmers, I think of your parents. When I think of farmers, I think of the people on the land around you and across Northland whom I know well, who have farmed the land industriously since Coates of Kaipara, and who have provided the export receipts for this country to enable
us to live in the style that we have become accustomed to, which we now borrow for to stay afloat. The ACT Party salutes the men and women of the dairy industry.
I love farmers, and why would not someone from Epsom love farmers? If it was not for the farmers we would not be able to pay the interest on the $150 million a week that we are borrowing to sustain the present accounts. Every week we borrow from the savings of the hard-working Swiss, the hard-working Germans, and the hard-working Chinese so we can keep consuming. New Zealand would be another Greece without farming families like yours, Mr Speaker, who get up early in the morning and work late into the night to provide the export receipts for the consumables that we consume. So I salute farmers, in particular the dairy farmers, and the hard work they do.
I remember aged 12 working in Kaitoke on the farm of Allan
McCready, one of the great members of this Parliament, one of the great farmers of this Parliament, one of the outstanding Ministers of Police of this Parliament, and arguably the best Minister of Police we have had since the member for Whangarei. Allan
McCready was a dairy farmer from a small place called Kaitoke. If you have been through Kaitoke on the way to the Wairarapa, you will know what an inhospitable place Kaitoke can be, but it was the farmers of Kaitoke who milked cows on the grasslands of Kaitoke who paid for the power that drives the energy in this Parliament—let us get that right—and we salute them.
Where are the farmers in the Labour Party today? I know that the Opposition spokesman for farming grows blackcurrants in Motueka. I understand that; I know that he once had a business taking people down rivers in canoes. But where are the farmers? Where are the people like—remember that great farmer spokesman this House had once from the Labour Party, Colin Moyle? I was here in this Parliament with Colin Moyle. I was here in this Parliament with Jim Sutton. Jim Sutton and Colin Moyle would be appalled at the level of debate coming from the parliamentary Opposition this afternoon.
In the year to December 2011 dairying generated almost $13 billion in export receipts. It accounts for 25 percent of our exports. Those men and women who get up at 4 o’clock in the morning to milk the cows—to provide the milk for the exports for the foreign exchange earnings—are the people we are talking about today. The ACT Party stands with the productive sector. The ACT Party stands with the wealth creators. The ACT Party stands united behind farming families up and down the country.
I find it rather gratuitous also to witness the abuse that farmers—particularly dairy farmers—take from the Green Party. I heard a Green Party member of Parliament who has probably never owned any business, let alone a farming operation, describe them as the dirty dairying industry, which, of course, is in respect of a very tiny minority of farmers. Most farmers are environmentalists. They care about the land, they care about the animals, they care about the country, and they work hard all day and all night to provide the export receipts so that the Green Party members can have lights in this Parliament to conduct their opposition to the export tradable sector of this country.
Fonterra is a farmers’ business, and, like any business, regulatory uncertainty and creep pose a risk. The ACT Party is wary of regulation. It can sap wealth creation and innovation. We believe less is generally best. However, Fonterra was created by statute and would not otherwise exist. It has a dominant market position; therefore, there is a public interest in how it conducts its affairs.
The bill has two features. The first enables Trading Among Farmers, or TAF. The ACT Party has no issue with Trading Among Farmers. It is their business, after all. It is the farmers’ business—the dairy farmers’ business—to trade their shares in their family farming operation. But the second feature is the regulation of the base price of milk. The bill extends the role of the Commerce Commission so that it has oversight of how Fonterra does this. As someone who comes to this House from this business, I know
that setting the price is the most intimate thing a business can do. Therefore, the public interest in regulating this must be significant. The ACT Party has concluded that it is. The reason is simple. Fonterra sets the default price of milk for all participants in the dairy industry. Although there is no right price for milk, there is a range of where the right price should fall, and outside that range we have economic distortions. The ACT Party believes in a level playing field for everybody in this tradable sector of the economy. It can also impact on the environment.
The bill seeks to encourage Fonterra’s efficiency while preserving contestability in the dairy market. Contestability is critical to keep competitive advantage so that New Zealand can sell at best prices for returns of foreign exchange to the rest of the world in a highly competitive business. On contestability we have a slightly different view from officials. We do not think the stretched milk price works the way officials say it does. Nor is it consistent with the body of our competitive law, but the ACT Party concedes that this is a highly technical issue that Opposition members will have absolutely no idea about if they grow berries in Motueka.
The dairy industry universe is not about either Fonterra or small independents; it is about both. The dairy industry is about the small, highly competitive industry of small players and large players. It is remarkable that New Zealand accounts for about 2 percent of global dairy production, but about 33 percent of cross-border trade in dairy products. That is huge. My view is that Fonterra needs to set its sights on expansion abroad. What I know is that innovation and dynamism on the margins are likely to come from smaller players. Innovation and dynamism in this industry will come from the smaller players, not from Fonterra. They have a critical role in the value-added baby formula business, products with health additives, and organic milks and the like.
This innovation is good for New Zealand. Competition is good for the dairy industry. Small players we put on a pedestal. They are critical to the competitive edge for the foreign exchange earnings to pay the interest on the $150 million a week we are borrowing for the Crown account. So the ACT Party thanks farmers, the ACT Party backs farmers, and the ACT Party supports this bill.
Hon DAVID PARKER (Labour)
: I did agree with some of the comments from John Banks, but it did not escape me that he accused others of gratuitous abuse, and then proceeded to do exactly that to every party in the Opposition. I do not think that reflected very well on the rest of your speech, Mr Banks, and it was unnecessary. I do agree with you that it is important that we have a competitive milk price—that the split in the total return that Fonterra co-op members have between milk and their profit from their shares in Fonterra is an appropriate split.
I also agree with the Hon John Banks that it is a highly technical area. Members of the Labour Party, as I am sure the members of the ACT Party and other parties, have received submissions from some of the competitors who are wishing to purchase milk, who have a view that the price-setting mechanism in the Dairy Industry Restructuring Amendment Bill is not right. I have to say that I was initially convinced somewhat by some of those assertions that the milk price was being set at too high a price, being based on a theoretical model for the price of milk, driven by a theoretical, profitable business based on new investment that goes into primarily milk powder, rather than some of the older assets relating to the production of cheese, which are less profitable.
I was eventually convinced by Fonterra, and from submissions that the Primary Production Committee received and from officials advising the select committee that, in fact, the profitable parts of the Fonterra business and the profitable parts of competitors to Fonterra are generally driven, these days, by a milk price model that relates to milk powder, and that, therefore, the fundamental building blocks of this price model that Fonterra is using, which is based on a milk powder model, is correct. So in respect of
that part of the bill, I have got to the point where I think it is appropriate. I think that there are proper concerns raised by the smaller competitors that they not pay too high a price for milk, because obviously if they have to pay too high a price for milk—an uncompetitive price—they cannot operate. And I agree with Mr Banks that it is in those small operators that we do see innovative practice being developed, including for niche markets and overseas, and that that competition at that part of the market is important to the long-term health of the Fonterra Cooperative Group, which is what we are trying to grapple with in this piece of legislation.
But the part of the jigsaw that is, for me, wrong in respect of this legislation is the absence of a statutory cap in the legislation restricting the proportion of the co-op shares that can be put on this trading platform, so that the farmer does not own the returns from those shares. Farmers would still get a price for the milk that they deliver, but they do not get the share of profits from those shares that they put on this trading platform. We have had to endure the insults from Mr Banks, who asserts that in the Opposition we have got no understanding of commerce. Mr Banks, it was you who tripled council debt when you were last the mayor of—
Mr SPEAKER: Order! The member does not use “you” like that—
Hon DAVID PARKER: I accept your point.
Mr SPEAKER: He is perfectly entitled to debate the issue, but he must not—
Hon DAVID PARKER: It was Mr Banks who tripled council debt when he was last mayor, and we do not accept lessons in fiscal responsibility or economic management from Mr Banks.
Trading Among Farmers is driven by the concern amongst Fonterra that its capital base could be at risk of people redeeming their shares in the co-op in a way that creates, effectively, a run on the finances of Fonterra. There are a number of points to be made about that. One is that the worst, almost, imaginable combination of events did occur a few years ago. We had the global financial crisis coinciding with a drought. Farmers were pressed on their balance sheets. They were further pressed by banks, because those—
Hon Member: Mr Banks?
Hon DAVID PARKER: —not Mr Banks; by New Zealand banks—banks themselves were suffering liquidity constraints. They put the squeeze on a number of farmers to whom they had extended credit. So there were a number of farmers saying that they wanted to withdraw some of their capital tied up in Fonterra. In addition to that, we had the prior period of boom time when Fonterra had not been making any retentions from its profits by way of retained earnings to improve Fonterra’s balance sheet. Despite that almost perfect storm, to the detriment of Fonterra, Fonterra did get through. So I think some of the concerns about redemption risk have been overstated. None the less, there is a germ of truth there that Fonterra is appropriately trying to guard against.
The Labour Party has been a long-term supporter of the structures under which the dairy industry in New Zealand has thrived. It was the Labour Party, under Michael Joseph Savage, that created the first form of the Dairy Board. It brought this collective strength of all of the farmers together and caused the development of this vertically integrated industry, which ensures that an appropriate share of the total profit to be made from the farm right through to the retail consumer is captured for the benefit of the New Zealand farm and the New Zealand economy.
It was the Labour Government under Helen Clark and Michael Cullen that then forced through legislation, with the support of the National Party, that overrode local competition concerns, to the detriment of New Zealand’s consumers, probably, in respect of the New Zealand milk consumption market. We overrode the Commerce Act,
which would otherwise have stopped the merger of New Zealand Dairy Group and Kiwi Cooperative Dairies, because of their dominance in the New Zealand milk market.
Shane Ardern: But they had to divest it in 6 months.
Hon DAVID PARKER: I beg your pardon?
Shane Ardern: They had to divest of up to 50 percent of it in 6 months.
Hon DAVID PARKER: There were conditions relating to divestment, as Mr Ardern suggests. But this Parliament overrode New Zealand’s Commerce Act in order to bring Fonterra into being. We did that because we thought that there was a New Zealand interest that exceeded the domestic competition concerns. Since then, under this vertically integrated model, the interests of Fonterra and the farmers who own Fonterra and the country that benefits from Fonterra have improved, as it has been a very successful model. The germ of that remains true: we want a vertically integrated industry. To the extent that you can have different holders of share capital in Fonterra who have different interests, you set up a tension. I think everyone agrees that that tension is created by this legislation—that there will be some people who in the future are not farmers and who have a long-term interest in the vertical integration of that industry, from farm gate through to retail in China or wherever those branded products are going to be sold in the future. There could be a tension between the interests of those long-term farmers and the interests of the New Zealand economy, which coincide with the interests of those farmers, and the interests of people who buy the profit stream from some of these shares through Trading Among Farmers.
It is that point that we in this Parliament need to be very careful about, because, as Mr Banks and the Minister for Primary Industries have previously said, this has become New Zealand’s most important export industry. A full quarter of New Zealand’s exports come from the dairy sector, and just about all of them come from Fonterra. So we should be taking care that we do not kill the goose that lays the golden egg. It is for that reason that the Labour Party has said that there ought to be a statutory limit in this legislation as to the proportion of the total shares in Fonterra that can be traded and separated from the farmer who provides the milk. We have said that that limit should be 20 percent. Our reason for that was that there have been overseas examples relating to Kerry Group dairy in Ireland where, at 20 percent, the long-term seeds of destruction of the cooperative model have been sown. So we thought that 20 percent is probably an appropriate limit.
Fonterra came back to us and it engaged with us very maturely, with the expertise that you would expect from Fonterra, and its professionalism, and we thank it for that. It came back and it said: “Look, 20 percent we cannot live with, but 23 percent we can—23 percent is above where we intend to go.”, and indeed, it wants to have a limit in its own constitution to a similar effect, of around 20 percent. I might have that percentage wrong, but Fonterra wants a limit in its constitution. It was willing to agree to an amendment through this Parliament that had a statutory limit, and said: “If you want to go beyond that, you’ve actually got to think, from the point of view of Parliament, about whether you are sowing the seeds of destruction in the cooperative.” The National Party would not agree to the amendment, therefore Labour is opposing this legislation, because it is without the statutory protection of a statutory limit.
STEFFAN BROWNING (Green)
: E te Rangatira o te
hungakōkōtātākī me te kaupapa o te wiki, te reo
taketake o te whenua
tēnā koutou katoa.
[To the Speaker of this House, the quick-witted speakers, and the matter relating to this week, the indigenous language of this country, acknowledgments to you all.]
The Green Party opposes the Dairy Industry Restructuring Amendment Bill. It is the thin end of the asset sales wedge; the setting up of the selling out of the Fonterra Cooperative and its family-farmer members. It is the dairy farmers’ poor cousin of the
Mixed Ownership Model Bill. This Government is into selling out everything, not just our power companies. Now we are selling out the actual fundamental dividend stream of one of New Zealand’s main export industries. This Government is selling everything it can to its mates, and all too often to foreign investors. We have foreign ownership of our forestry and our fisheries, and now we are into a sell-out of dairy. We need to ask the Minister for Primary Industries what he intends to sell out next of New Zealand’s primary industries, which are the backbone of New Zealand. Who else is he going to turn into serfs?
In this Dairy Industry Restructuring Amendment Bill, the so-called Trading Among Farmers provision allows outside investors to trade on the dividend stream of Fonterra farmer members, and begin an inevitable demutualisation of Fonterra and increased foreign control of New Zealand’s primary industry sector, the sector that provides 70 percent of our export earnings, and is the backbone of our country. Trading Among Farmers is trading against farmers—nothing less. We do not believe that Fonterra or this National Government has a mandate to push it through.
We have heard a little bit about the numbers, and I want to go back to those numbers again. In Fonterra, it is not one person, one vote. It is one share, one vote. The amount of shares a farmer has is determined by how many
milksolids that farmer supplies, so the big suppliers hold the larger proportion of the shares. The Greens believe that it is likely that it may even be slightly under 50 percent of actual farmers who voted for Trading Among Farmers. The Minister, David Carter, reckons it was 66 percent of farmers who voted for it. Where are his figures? How many farmers actually voted for Trading Among Farmers? I bet that if we applied the
Perito principle, 80 percent of the 66 percent who voted were shares of big business. The Minister for Primary Industries, Fonterra, and the Fonterra Shareholders’ Council need to front up with the real numbers.
Fonterra has said that it needs Trading Among Farmers to achieve the capital to allow offshore farm and infrastructure development. Then it said: “No, no, no, that is not what we are saying. It is to cover redemption risk.” Many submitters to the Primary Production Committee pointed out that buffering for redemption risk can be achieved by other means, such as a retention policy, which has already been shown to be successful in acquiring significant capital. Figures show that the retentions taken from 2008 may have managed any redemption risk. In fact, $438 million was taken in 2010 and it was retained, and another $487 million last year. Effectively half a billion dollars a year can be retained, and yet Fonterra was saying that it needs to do this smart thing by letting outside investors in to manage redemption risk. Rubbish! That is clearly not the case. Fonterra chair, Mr van
derHeyden, and his friends seem to have taken a walk away from their members, and are pushing the way for foreign investment.
This Dairy Industry Restructuring Amendment Bill also missed an opportunity, an opportunity to develop a smart, green economy that will support the primary industry and family farmers. The focus of the bill on the efficient operation of dairy markets in New Zealand missed an opportunity, and it fails to allow for gains through such value-adding systems as organics. “Efficient” is primarily a term used for volume-based production and marketing. It does not address long-term economic efficiency provided by sustainable production.
The dairy industry has presented to me the suggestion that it wants a 10 percent lift in production while holding its environmental footprint to the status quo, as though the status quo was OK. Well, that is not such a fantastic outcome, when the status quo in environmental outcomes is seriously way below par. This bill could have included drivers that could have focused on value-adding on farms through certifiable sustainable
production such as organics, not further commodification for outside and—all too often—foreign interests, making New Zealand farmers peasants in their own land.
There are those who suggest, and have suggested today, that the Green Party is opposed to farmers in New Zealand, and that it is opposed to the growth of the primary sector. We are far, far from that. We want more people on the land, looking after the land, and the provisions in this bill reduce that. We are concerned that there are actually fewer dairy farmers and more dairy cows. That is an indication that intensification has increased. We need more people on the land, and we want to make that possible through intergenerational farming and through looking after a co-op that is going to give them the best deal.
Primary production co-ops or single-desk collectives and initiatives work to the advantage of their members, to ensure the best returns for their farming, and for their sector’s production. But unfortunately this bill allows this co-op to take a walk away from supporting individual farming families. This bill is about supporting the big, big companies and foreign investors, instead of the traditional family-farmer supporters of the National Party. It is about supporting contestability and theoretical open competition. That is only going to damage the Fonterra Cooperative. It is not about helping New Zealand farmers. We oppose this bill. We look forward to a change of Government in 2014, and a smart, green economy that supports a primary industry and its family farmers.
SHANE ARDERN (National—Taranaki - King Country)
: Before I start my address on the Dairy Industry Restructuring Amendment Bill, I must declare an interest, as a family trust that I am involved in owns shares in Fonterra. There has been a lot of discussion around the ownership structure of our dairy industry during this debate. I want to just put on record, as a dairy farmer, as someone who has followed this debate closely, and as chair of the Primary Production Committee, that it is in the DNA of most dairy farmers who are shareholders in Fonterra to maintain 100 percent ownership in the Fonterra Cooperative. This is not just some ideology. It is not something that we think of just because that is what we think should happen; it is actually based in sound economics and commerce. That is that we produce a product that is very perishable at the time of its production, and, therefore, it is important to be able to make sure—to have a 100 percent guarantee, if you like, through 100 percent ownership—that the processing, the transporting, the marketing, and the exporting of that product is under the control of those who produce it. To trust someone else to do that would be a step outside of what has worked for our industry.
But, that said, when Fonterra was formed it was a construct of legislation. It was the merger of three entities and it brought together 90 percent of the milk production in New Zealand. There had to be a regulatory structure to allow that to happen. If you study all international examples, you will find very, very few structures anywhere with that type of dominance in a particular market or within a particular industry sector. So the bill is a compromise. It is a compromise. There is a compromise in what we are trying to achieve, and that is to allow free entry and exit for farmers who wish to enter or exit Fonterra, and to make sure that they are able to enter and exit with their fair share of the capital that they bring in when they become a shareholder in Fonterra.
Trading Among Farmers, which is much debated and maligned by some in this debate, received 66.45 percent of the
milksolids shares in support of that concept. The bill does not compel the industry; it is enabling. It is enabling. It enables the industry to do that. The industry came to Government, as the Minister for Primary Industries said, and asked for it. The reason was that it identified $1 billion worth of potential redemption risk. That was identified because the industry’s funders told it that that is what they would discount or allow as a risk against the borrowing involved in the
industry. So whether or not people agree with that, or whether they think that was overstated or understated—or whatever the view is—that is what the industry was confronted with.
I have heard a reasonable amount of discussion about the ability to retain earnings through retentions rather than pay them out to farmers and thereby overcome some of that redemption risk, and that is true. There is an ability to do that. But in a time of hard economics with high debt, a farmer cooperative that decides it is going to keep its own balance sheet in good shape and not look after its shareholder farmers is a cooperative that is probably on a slippery slope to oblivion, and the farmer shareholders would certainly make sure that that did not happen. So once again it is not as black and white as others would have you believe.
In the 2008-09 year, when the redemption risk was real, Fonterra was confronted, first of all, with an international economic crisis. Those are not my words; they are words used by economic commentators around the world, and if you were to visit Europe at the moment, you would understand what they mean by that. Fonterra was confronted with a drought in New Zealand, which had the Minister of Agriculture at that time travelling the length and breadth of the country declaring big parts of the country a drought zone. And it was also confronted with the Sun Lu melamine poisoning in China—
Hon Phil Goff: San Lu.
SHANE ARDERN: San Lu—the member corrects me. It was confronted with the San Lu poisoning of baby formula in China. Those were three major hits, you might say, on the integrity of what is a farmer cooperative—the economic integrity of a farmer cooperative—that prides itself on exporting to the world milk and milk products with high quality and safety. So there was a redemption risk, it was real, and something needed to be done about it. The result of that and the many discussions that have taken place since then is the construct of Trading Among Farmers.
At this point I just want to thank once again the members of the Primary Production Committee. We were faced with a number of challenging issues. This is a complex piece of legislation. It covers a wide range of very difficult questions to answer, from where the Commerce Commission’s involvement should stop and start, to where the limits on the size of the fund should stop and start, to the price of Fonterra shares versus the farm-gate milk price. These things are not easy to resolve, and certainly there will be no simple silver bullet to resolve these issues. The select committee not only listened to advisers from within Government but sought independent advice. We listened to the submitters—all of those who wished to submit to that select committee—and the team on that committee, I believe, had only one interest in mind, and that was the interests of “New Zealand Inc.” plus the protection of our largest company and the exports of our products to 150-odd countries in the world. This is a very timely piece of legislation and I support the passage of this bill.
RICHARD PROSSER (NZ First)
: I am pleased to rise at this stage of the Dairy Industry Restructuring Amendment Bill on behalf of New Zealand First. I am pleased but, I have to say, also a little glum because we have come to what is apparently the obvious end of this process, the culmination of which will be the bill’s passing into law. I have reservations about this, as I know many others do, and in spite of what the Minister for Primary Industries said earlier about the Labour Party caucus not being united behind its spokesman, Mr O’Connor, I am aware that there is some contention still within the National Party caucus on this bill, because there are things about it that are not good, and there are things about which, I believe, many in the dairy industry itself have reservations. But the bill will be passed, and we will all have to live with that and with those possible consequences.
Essentially, this bill does not need to be passed in order to achieve the aims that it claims it intends to achieve. We are told that the bill will enable the Trading Among Farmers scheme, which has perhaps been the most contentious issue. It will also instigate a price-setting monitoring regime and give us an alternative to the Trading Among Farmers scheme should the scheme not be taken up by Fonterra or should it not work, and that will be the share-value fixing mechanism. But Trading Among Farmers is not, as we have discussed in this debate earlier, what farmers voted on originally. The scheme as it was originally mooted was about trading among farmers, but it has morphed into trading including farmers. As has been mentioned by me and by others in earlier sections of this debate, if the trading scheme requires external capital, then it cannot be, by definition, Trading Among Farmers, and it is quite possibly not the right model for Fonterra to be following. The numbers that are worked around what Trading Among Farmers needs to achieve is that it needs to provide a shareholder pool of around 8 percent. That would require, because of the limitations on the number of individual dry shares that each farmer shareholder can own—being limited to 5 percent of the total—something like 25 percent of all farmers to give up 20 percent of all their holdings, and that is unlikely to happen, which means that we will need outside investors. So the scheme is not about trading among farmers.
The process by which the system has been examined was rushed. The period for submissions was truncated from something like 6 months to something like 4 weeks, about 3 weeks of which Parliament was in an adjournment. Comments have been made that this was perhaps done to suit the agenda of a Government that perhaps wondered whether there was—or even knew that there was—quite a lot of opposition to the bill amongst the industry that it concerned.
The Primary Production Committee, which I was privileged to be an observer on—a fly on the wall, you might say, and a fly who was doubly privileged to be allowed to make buzzing noises every now and then; I am grateful to the committee for that ability to have input—certainly did not have as much time as any of its members would have liked in order to consider all submissions and consider all the possible ramifications of the bill. The Minister claims that the vote taken by Fonterra’s farmer shareholders gives Fonterra a mandate. Others have mentioned the numbers involved. We do not know, in fact, whether it was a majority of shareholders; we know it was a majority of shares. As to whether that process is a democratic one that has been passed, we can question the ins and outs and the ethics of it as much as we like, but the fact remains that we have a mandate on paper, and whether or not we believe it is a mandate in truth is something that history will come to record.
The flip side to Trading Among Farmers—whether it goes ahead or not—is the share-price setting regime. Examinations into both the milk price and the share price by the Commerce Commission and by others have all come to the conclusion that both the share price and the milk price are reasonably fair anyway, so these are not necessarily things that need to be examined, and not something for which we need this bill to be passed.
We are told also that one of the purposes for Trading Among Farmers is that it will strengthen the capital markets of New Zealand. I wonder—as I have wondered through this process—how this will be of benefit to Fonterra or to the New Zealand dairy industry. It will not, because beyond the initial bonus share issue—the dry share issue—the trading scheme will not benefit Fonterra at all. It will, in fact, benefit only the traders. Fonterra will gain a pool of capital from the selling of dry shares, and after that it can really wash its hands of what happens with the trading of those shares, but it cannot because as those shares are traded they will increase in value—they have to increase in value; there is no point in trading shares unless they increase in value—and
as those dry shares increase in value, as the units attached to them increase in value, so the wet shares will increase in value also. This will give the lie to the stated intention of the bill, and of, indeed, the Dairy Industry Restructuring Act itself, to enable free entry and exit to the cooperative. Although free entry and exit will be there on paper, it will be limited by the cost of the shares. The share value increasing will not only affect the ability of farmers to enter and exit the co-op but actually create redemption risk where redemption risk does not seriously exist at the moment. Sure, redemption risk is a factor that we need to take into consideration, and we have seen redemption, but, as has been stated numerous times through this debate, it is not as big a bogey man as it has been made out to be. Given that that the stated reasons for Trading Among Farmers is that it will assist Fonterra to alleviate redemption risk or provide it with a capital pool for growing its brand’s business, this bill is not necessary.
There are other mechanisms by which these ends can be met. Redemption has been overstated, as I have said, but it can be alleviated by changing the period over which share values are paid out to farmers leaving the co-op from 30 days, as it currently stands, to 3 years. This does not need a legislative change, for Fonterra can do that now if it wishes without needing the law to be altered. Alternatively, the retention of 30c a kilo, we are told, over 3 years would raise $1 billion for Fonterra, and since all Fonterra’s wealth comes ultimately from milk, any means of raising capital will come from retention or reduction of profits anyway. For this to happen, this bill is not necessary. Fonterra can do this now without needing the law changed.
Alternatively, again, part of Fonterra’s offshore business could be separated, could be corporatised, and could be floated on world markets with the profits being retained by the cooperative. These offshore businesses are largely joint ventures anyway, and have the potential to grow to the point where they could actually swamp the parent company. There is a case that can be made for separating and floating off Fonterra’s offshore businesses, and for Fonterra to retain control and ownership of its New Zealand operations and of its brands businesses. This is a mechanism by which Fonterra’s need for an additional capital pool could be met without passing this bill.
We disagree fundamentally, in New Zealand First, that the milk market needs to be contestable. This is because there is a clash of philosophies here. Either there is a virtual monopoly or there is not. Fonterra exists as a creature of statute that was created because the dairy industry came to Parliament and said: “We wish to merge and we wish to become something that is larger than is allowed under commerce and fair trading rules.” Parliament looked at the model that Fonterra would become if it were allowed to be created and said: “Yes, we can see that this will be of value to ‘New Zealand Inc.’ as a whole, because this thing is going to be large, it is going to be powerful, and it is going to benefit everybody.” So it was allowed to exist. To attempt to introduce the concept of contestability at the same time as a virtual monopoly is a clash of ideologies. It is attempting to have one’s cake and to eat it as well, and we do not believe that it is a desirable thing, let alone a necessary thing.
My erstwhile colleague from the Greens referred to this process as the privatisation of Fonterra, and I confess it is a term I have used myself. I must clarify that we are all fully aware that Fonterra is entirely private. It is a collection of private businesses, of private farmers, of people who get up at 4 o’clock in the morning and go and do the dirty work so the rest of us can enjoy the benefits of the foreign exchange that their industry earns. It is about corporatisation rather than privatisation, and although I agree with Mr Browning’s sentiments, I must clarify the terminology around it. But the purpose of a co-op is to maximise the returns to its shareholders. If either the share values or the dividends are maximised instead of the returns to farmers—instead of the milk price—there is no way that the farm-gate milk price can return those maximum
profits to its farmer shareholders, because, as I said earlier, all the money comes from one bucket of milk.
In closing, I wish to restate what the departing Chief Executive Officer of Fonterra, Andrew Ferrier, said in September 2011. Fonterra does not need outside capital. Indeed, it does not, and it does not need this bill, either. New Zealand First does not support this bill.
COLIN KING (National—Kaikōura)
: It is a pleasure to speak during the third reading of the Dairy Industry Restructuring Amendment Bill. In doing so I think we need to reflect ourselves, and project ourselves outside this debating chamber, because I sense a degree of polarising of views from the Opposition.
When you think about Fonterra and you think about milk, it is about cooperation, because if you do not cooperate you do not actually have a product. When you think of Fonterra and the construct of the legislation, of the Dairy Industry Restructuring Act, it is obligated to take milk from where it is being produced. I might say that those people who would set themselves up and compete against Fonterra for that milk production would go to where it is the most efficient to pick up the milk in those areas like the Waikato, like Canterbury where it is developing, or like Southland. They would not set themselves up in
Kaikōura, where there was an absence, or a small number, of dairy farmers.
So I just want to set things into this context, because while we consider this amendment to the Dairy Industry Restructuring Act we need to see that this is an organisation that is primarily export-focused. Although we in the House here did give it the ability to not be subject to the Commerce Commission, as would be the normal practice, conditions, and terms inside this country, it was purely driven out of the essential element that New Zealand is a nation that exports at least 85 percent, if not 90 percent, of what it produces. So having put that in place, this amendment bill, I believe, is the next step, and the next positive step, for Fonterra, because it must compete internationally and it needs to succeed for the benefit of New Zealand. Really, what we are talking about here is a construct that actually uses sunlight, water, and the elements of the earth to produce protein, and changes that protein into something that can be exported to 150 countries around the world.
The Act was also designed to encourage contestability. That was understandable, because we wanted to see a dynamic and vigorous Fonterra, and this is what we do have. So we go back to those times when these issues arose around redemption risk. We have had it articulated from the chairman of the Primary Production Committee that there was a triple whammy, as it were, where redemption risk became quite evident and the international bankers valued that at $1 billion. One has only to stop and think what that would do to the fiscal settings and economic settings of a company to be able to conduct itself in an orderly and effective way. In talking about growth and entering other markets, you can understand the dilemma that the governance structure of Fonterra would have faced. So from that point of view we want to also realise that back in 2006-08 it was the very governance structure of Fonterra that has brought it back to the situation where it is dynamic and is taking this next step.
So without going any further, this bill has been well canvassed. Trading Among Farmers is a relatively simple and straightforward exercise. The size that Fonterra specifies for this pool is somewhere in the region of 12 to 14 percent, and I wish that this exercise proves very fruitful and achieves the very goals that Fonterra has set itself. If it does not, there is the catch net within this piece of legislation to ensure that the status quo is enforced and that free entry and exit are maintained. I have great pleasure in supporting this bill.
Hon PHIL GOFF (Labour—Mt Roskill)
: The Labour Party will be opposing the third reading of the Dairy Industry Restructuring Amendment Bill. I say we will be opposing it with a sense of regret, because it did not need to be that way. Actually, we well understand what Fonterra’s objectives are. It wants to expand its capital base, and it wants to protect itself against redemption risk. The Labour Opposition, through our spokesperson Damien O’Connor, who actually is supported by every member of our caucus, put forward an amendment on Supplementary Order Paper 85 that would have provided a safeguard for the future of Fonterra as a mutual company, and one where the shareholding and the dividends would remain predominantly within New Zealand.
I deeply regret that the Minister for Primary Industries, David Carter, rejected that amendment, and I deeply regret that he rejected it on the wrong basis. He rejected it, he said, because he had received it late and it was a political stunt. It was not a political stunt; it was something that Damien O’Connor had worked out very carefully with Fonterra, yet the Minister said that Fonterra was opposed to it. That was his opening line in the Committee stage. Fonterra was not opposed to it; Fonterra helped to draft it, and that would have provided the reassurance that many farmers and many New Zealanders want, that this process was designed to strengthen Fonterra, not to undermine it, and that it was not the top of the slippery slope. I think Shane Ardern used the words “a slippery slope to oblivion”.
I think that is the concern that is out there amongst many farmers. Shane Ardern is in touch with many farmers, and he will know the truth of that. I get the farmers’ newspapers every week. There are three or four of them. I am amazed at how vibrant the farming sector’s newspapers are. I read about the concerns and I read about the dismay. I will tell you what I read this week: I read that a couple of Northland farmers are taking the first steps to set up a rural New Zealand party—a rural New Zealand party—based on the sort of thing the Government has done in steamrolling this through without listening to their concerns. You know, those farmers do not like the shiny suits in the National Party. They do not like the fact that their party has been taken over by the currency speculators and the traders and the speculators. They have had a gutsful of that. They have had a gutsful of the sorts of people whom John Banks says he represents. John Banks, the member for Epsom, said he loves farmers. His electorate, Epsom, is full of farmers—Queen Street farmers! They are the guys who have never done a day’s work in their lives. They are the guys who would not know how to pull on a pair of gumboots. They are not the guys who are out there at 4 o’clock in the morning, milking the cows, or out there in the rain, as I was last weekend, helping to deliver lambs. They would not have a clue about that. That is what has happened to the National Party: it has been taken over by the Queen Street farmers.
It is all very well—[Interruption] They are excited now. You see, there is a huge division within the National Party between the old National Party—people like Shane Ardern and Ian McKelvie, who actually know what a farmer is like—and the, I was going to use a term that I cannot use, smart, shiny-bummed people in the National Party who would not understand a sheep or a cow if they fell across one.
I was concerned that David Carter talked about the lack of cross-party support. I was in the House and in Cabinet when the Labour Government passed the 2001 Dairy Industry Restructuring Act. We did that very carefully. Shane Ardern nods his head, and he was right—and so was David Carter, actually. We consulted, we listened, and we took the process carefully. We took all the time that it needed, and we won consensus for that. It was worthwhile making that effort, but not in the case of this bill. This bill, if you read the minority report from the Opposition parties, was rushed through the Primary Production Committee. The committee did not listen. It did not consult. It did not look at all the alternatives. It did not have answers to a lot of the questions that the
submitters put to the select committee. It was a poor process, and the result of that poor process is that this important piece of legislation is going through with the House as deeply divided as the farming community.
I want to pick up the Minister on the other point he made. He said that 66.5 percent of the farmer vote was in favour of the bill. That is wrong. It was 66.5 percent of the milkfat production, and it was the farmers who were responsible for that who voted for it. I am told, and Damien O’Connor is told, and Shane Ardern probably knows, that the figure was actually closer to 50 percent. If it was not close to 50 percent, I issue this challenge to Federated Farmers and the National Party—that is, the Federated Farmers in gumboots—release the figures. Release the figures. We know that at least a third of the farmers in this country bitterly oppose this legislation in its current form. Actually, I think the figure was close to half, and I believe that, because if it was not close to half, the National Party would have released the figures or Federated Farmers would have done so.
What we wanted from this bill was quite simple. We wanted a statutory cap on the number of bonds representing share value that could be sold from the fund. After consultation with Federated Farmers, that was set at 23 percent. It will probably try to set the figure lower, and I welcome that, at 20 percent, but it gave it a bit of room to manoeuvre. Why 23 percent? Because it is lower than that commonly accepted figure of 24.9 percent, where a minority shareholder can nevertheless determine the future and the direction of the company. It was not too much to ask. It could have been done. It should have been done. It would have provided guarantees that we would maintain the cooperative nature of Fonterra, and it would have given those guarantees to farmers and to New Zealanders.
I spent a lot of my career as a Minister going out and fighting for Fonterra. It was a company worth fighting for. It provides 15,000 jobs. It provided last year close to $11 billion worth of dairy exports. It is an efficient industry. It is a good company. I want to make sure that that company thrives, but I am concerned when the Prime Minister of this country stands up and says that he believes that Fonterra shares should be floated on the stock market. I ask the three farmers sitting there in a row—I will not use the pun of three people sitting in a row there—I ask any one of them whether they support that as National policy. Do they support it as National policy?
Shane Ardern: It won’t happen. They won’t get floated—don’t worry.
Hon PHIL GOFF: Don’t worry, he tells me. John Key, their Prime Minister, said that it would be great if Fonterra shares were floated. Whom do I believe? Do I believe three backbenchers, representing the diminishing support of the farming community for National, or do I believe the currency trader John Key? I will tell you whom I believe: John Key. This is the top, as Shane Ardern said, of a slippery slope to oblivion of a cooperative enterprise, and a New Zealand - owned and controlled enterprise.
The truth is that this lot over there, the National Government, would sell anything it could lay its hands on—sell anything. It is already selling our basic productive resource: the land. Where was the concern expressed within the National Party about 8,000 hectares of prime dairy land going to Shanghai
Pengxin? Where was the concern about that? Where was the concern from Bill English about thousands of hectares of prime dairy land in Southland going to German investors? This Government will sell the land. This Government will sell the shares in our biggest and most important export company. This Government will sell the shares in our electricity companies, and see the profits made from that fundamental strategic resource flow out of this country. It will even sell the prisons, and it will sell the right to gamble or make profits out of gambling. It will sell anything. There is no principle underlying the National Government about
controlling New Zealand’s future, about owning our future, about running New Zealand for New Zealanders by New Zealanders.
That is what we would once have heard from the National Party, but it has given up. It has given up on protection of this country’s future. It looks back to the past, and it was not a bad past, but what about the future for our kids? What will our kids own? What will our kids control? What will sovereignty mean in this country if our biggest and most important export industry ultimately falls into the hands of foreign investors? And how does it help our current account deficit, up by $480 million in the last quarter, which will be billions of dollars more within 2 years? This bill does not contain the clauses, the safeguards, that it needs to contain, and that is why the Labour Party will be strongly opposing it.
:Tēnā koe, Mr Speaker. Kia kaha. This bill, the Dairy Industry Restructuring Amendment Bill, ensures we continue to have the most efficient and effective dairy industry in the world. It will ensure our dairy industry is able to meet the significant challenges ahead, both at home and abroad. Frankly, having listened to the last half-hour in this House, I could spend the next 20 minutes challenging almost everything that has been said, but I will not.
Hon Phil Goff: Oh, go on! Just have a go at it.
McKELVIE: No, I would not do that to you, Mr Goff. I will not waste time. I have got a very short time here. This industry—
Hon Phil Goff: That’s true.
McKELVIE: On account of my age.
Hon Phil Goff: It’s about another 2½ years, I’d say.
McKELVIE: Well, I am older. This industry has, as a result of this legislation, the confidence and ability to significantly assist the creation of new jobs for New Zealanders and to assist in the development—and not only the development but the creation—of a new way in relation to our environment and farming in New Zealand. It needs to have the strength and the confidence that this structure will give it to achieve that.
Many dairy farmers were uneasy about the ability of this Parliament to interfere in their business. They were a little nervous about what Parliament might do to their industry. I am pleased to say that we have not damaged their industry but strengthened it by the actions of this House. In the Trading Among Farmers scheme its market price, in my view, will be set by the response to the market. It will eventually manage the milk prices well. What I mean by that is that as this system eases into place, the share price will eventually measure and monitor, or set, effectively, the milk price. So I think this scheme, Trading Among Farmers, is an extremely good scheme for the future of the dairy industry and I think it will give some resilience to Fonterra and some resilience to this industry that it much needs.
There has been a lot of talk about the fact that Trading Among Farmers sells the New Zealand industry to overseas interests or to other people. I can assure members of the Opposition that the only people who will sell this industry are the New Zealand farmers; no one else has the ability to sell it. So if it is ever sold, it will be the New Zealand farmers who will do that.
Mr Browning, a member for who knows where, accuses us of selling out the industry, as I said. I think he has also made a lot of statements during the course of this bill about the environmental matters created by the dairy industry. As I said earlier, this bill will give this industry the confidence and the income to significantly change the way that it works. The ball is now clearly in the dairy farmers’ hands, and I am convinced they will pick up the ball and run with it hard for the benefit of us all.
I just very briefly want to acknowledge the great effort put into the development of this legislative process by so many passionate and enthusiastic dairy industry people. There were a large number of diverse opinions expressed during the course of this bill’s passage through the House, and indeed it was a mission for us on the Primary Production Committee to get our heads around some of the early parts of this bill. There have been a number of statements made about the time that the select committee had this bill for. Frankly, I got my head around it, and I think everyone had plenty of time to get their heads around the matters that were raised both by the submitters and by other members who presented to that select committee, so I think the process was a good one.
I am confident this bill has the best interests of New Zealand and its dairy farmers at its crux. I guess I am a little perplexed, as I said, that the entire House did not get their heads around how this would be moved forward. However, I am confident that we have made the very best decision for both New Zealand and the dairy industry, and I am pleased to recommend that this bill progress through the House. Thank you.
The ASSISTANT SPEAKER (H V Ross Robertson): Just before I call the next member I advise the House that this is a split call and members will be given a warning bell with 1 minute remaining.
SUE MORONEY (Labour)
:Tēnā koe, Mr Speaker. It seems I am going to be talking about milk quite a lot this week in Parliament. Tomorrow I will be speaking about breast milk, but for today I am talking about the milk that keeps this country strong. Yes, that probably is breast milk as well, but with regard to this bill, the Dairy Industry Restructuring Amendment Bill, we are talking about the future of our dairy industry.
The future of our dairy industry is something that we must take very seriously indeed. I am very concerned to hear the reports, although I was not on the Primary Production Committee, of how rushed this legislation was through the select committee. After all, this is the industry that is the backbone of our nation. The legislation ought to have been taken seriously by all sides of the House.
For Labour’s part, we feel very strongly about the hugely successful cooperative model that has actually seen Fonterra become one of our few international success stories. In New Zealand we do not have many companies that can actually compete in the international market in the way that Fonterra does, and it is a huge success story for something different from the corporate model—the cooperative model. It is a model that has been owned successfully now for many, many decades by New Zealand farmers. I guess the rest of us also feel that we have shares in Fonterra, because it is such an important part of our economy. It is such an important part of everything that happens in our country, and for those of us who live in the provinces—and I am from the Waikato area—it is such an important part of how our local economies operate.
So this should not have been a piece of legislation that was ever rushed through select committee. I believe that it was rushed through for entirely the wrong reasons. There was a bit of a panic going on. There was a panic going on from Government—and have we not seen that? It is a bit of a theme for this Government as it panics its way through a number of political mishaps at the moment. I sincerely hope that this does not become another one of those political mishaps, but it certainly could easily do so.
This bill does open up the opportunity for our successful flagship cooperative model company to have shares sold off overseas. Again, it is a continuing theme that is happening through this Government as we are also dealing with the State assets sale issue at the moment as well, so there are themes running through. I know that Fonterra was deeply concerned about this issue.
I talked about farmers and the rest of us as if I do not fall into that category myself, but I actually fielded a phone call from Fonterra as it got a bit panicked about how the
vote might go on Trading Among Farmers. I received one of those phone calls at home as a Fonterra shareholder, asking me to participate in a survey in the days leading up to that vote. I think Shane Ardern looks like he may have participated in such a survey as well. Perhaps there was a high proportion of MPs who actually got asked the survey questions from Fonterra, but the phones were running red hot as Fonterra did urgent surveys to try to find out whether it would get that slim majority—which, in fact, it ended up getting—to get this Trading Among Farmers through. But it is very controversial, and I know that there are deeply held concerns within the farming community, and, more broadly, the agricultural community. Farmers are part of that, but the entire community, which relies on this very important industry as the backbone of what we do in this country, has a concern about the lack of protection in this bill to ensure that we keep that very successful and very important cooperative model.
I am very proud to say that I am, with my Labour colleagues, in opposition to this bill. I think it has too many risks. We have a very successful model in Fonterra. I want to keep that very successful model in place. It has been sustainable in the past. I do not accept the arguments coming from the Government and I oppose the third reading of this bill.
EUGENIE SAGE (Green)
: E te
Māngai o te Whare,
ngā mema o
tēnā koutou katoa.
Tuatoru, mihi atu ki te Wiki o Te Reo
tēnā koutou katoa.
[Greetings to you, the Speaker of the House. Secondly, greetings to you all, members of our House. Thirdly, acknowledgments to
Māori Language Week, so greetings to you all collectively.]
The Green Party would have liked to support the Dairy Industry Restructuring Amendment Bill. We have concerns about the environmental management of dairying, but we want Fonterra to succeed. The bill introduces a new milk price regime to strengthen the existing incentives for Fonterra to operate in accordance with the existing contestability standards in the substantive Act. It gives statutory backing to Fonterra’s existing governance and transparency processes by including them in the bill. It also introduces a new system for monitoring the farm-gate milk price to be done by the Commerce Commission, and the Commerce Commission will assess whether the farm-gate milk price provides incentives for Fonterra to operate efficiently.
That is useful, but the Green Party’s concerns with the bill centre on the new share trading system, Trading Among Farmers. The purpose of Trading Among Farmers is to provide a capital base to act or to use as a buffer against redemption risk or the risk of losing capital because farmers leave the cooperative. Government members argue that Trading Among Farmers is an effective substitute for existing share issue and surrender obligations when farmers enter or leave the cooperative so that they can continue to do that freely. Our concern is that introducing Trading Among Farmers signals a shift to the demutualisation and corporatisation of Fonterra.
Leonie Guiney summed up these concerns in her submission to the Primary Production Committee. She framed the issue as a choice between keeping Fonterra New Zealand - owned and able to put cash into communities through the milk price, or enabling Fonterra to become a target for large-scale overseas investors. She said that Trading Among Farmers was “a temporary solution to a problem of redemption risk that is being exaggerated, with an eventual loss of farmer ownership and control.” The Green Party agrees. The bill will benefit capital markets from trading, but it is questionable whether in the long term it will benefit dairy farmers.
Fonterra is the world’s No. 1 dairy cooperative. Trading Among Farmers creates a hybrid structure and two competing sets of principles between those regulating stock markets and those governing cooperatives, and that is where our concern lies. As a
cooperative Fonterra currently aligns the interests of dairy farmers who want their milk collected and a fair price given and the fiduciary duties of the board to act in the interests of suppliers. But Trading Among Farmers changes that, and as the James Morrison Consulting report, as independent advice to the select committee, said: “The introduction of a new class of external investor as proposed in TAF creates a conflict for directors that is not resolved by the dairy farmer retaining voting rights …” and “The tensions that will inevitably arise between farmer suppliers to Fonterra, external investors, and the Fonterra board’s fiduciary duties to those investors, cannot simply be contracted out of by the proposed systems. They represent”—Mr Morrison said—“a high risk of ongoing conflict between investors and supplying farmers.” And the result and likely outcome of that will be, he said, that the ownership of Fonterra becomes increasingly separate from farming over a timeframe of several decades.
As other speakers in this debate have noted, where you get this conflict of interest between investors and suppliers, every cooperative that has introduced external investors to its capital structure has eventually either demutualised or reverted back to a full cooperative by excluding those external investors. The fundamental changes to the successful cooperative structure of Fonterra are the reason why the Green Party is opposing this bill.
MIKE SABIN (National—Northland)
: This is a short call, but I am pleased to take a call on the third reading of this very, very important bill for all New Zealanders, the Dairy Industry Restructuring Amendment Bill. The overarching aim of this bill is, of course, to ensure that New Zealand has the most efficient dairy industry that we can possibly have. The Dairy Industry Restructuring Act was passed some 10 years ago. It was an innovative and quite unique approach for this country and, indeed, globally that maximises our trade opportunities out there in the big wide economy, and also provides the opportunities and competitive balance, which are required domestically. It has provided a tremendous platform, and we can see that by the level of growth in Fonterra. Dairying is now recognised as earning this country twice what the nearest sector behind it does, and I very much want to commend the farmers and Fonterra for the passion and the work that they do for themselves and this nation. It is very important. This bill introduces a new regime related to Fonterra’s milk price setting and, of course, the proposed capital restructure that we have been discussing today as Trading Among Farmers.
Interestingly enough, earlier this year I met with a number of farmers as the policy proposal rolled forward, and it would be fair to say that about 90 percent of them raised significant issues with the following matters. They were around square curving and the ability for competitors to take milk at a time and a price that suited them; the virtual processes and a little bit of smoke and mirrors that has evolved in the 10 or so years since Fonterra was created; and the ability for competing companies to take their 50 million litres of milk ad infinitum. All these matters are being addressed as part of this legislation, and I am very happy to say, after many conversations and meetings with famers, that they are very much satisfied with the direction that the National Government is taking. I will also say that the issue of Trading Among Farmers, actually, was very much a background issue and continued to be so, certainly in my electorate.
Just very briefly on the farm-gate milk price, in essence what we have is a situation where this bill will provide a greater level of transparency. A regulatory agency will release a report to add value to this transparency, and I think this is in the interests not only of Fonterra but also of all New Zealanders and competitors, and it is about having the appropriate balance. Trading Among Farmers—I only have one comment to make on this, and that is that this bill enables it; it does not impose it. The member Steffan Browning said that Fonterra does not have a mandate after the 66 percent vote returned,
because he believes that not enough people voted. I am not sure how he worked that out—perhaps he has a crystal ball he could share with other members in the House. He also thinks that because it is not a one farmer, one vote system it is patently unfair. I would like to point out to that member that, in actual fact, Fonterra set the terms of its vote. Fonterra certainly advertised and made Fonterra shareholders very much aware that the vote was going on, and they participated in that vote. By anyone’s count that is a mandate, and I would suggest that the contribution of Mr Browning, that Green member, is about as much use to this House as teats on a bull. For that reason I am very pleased to support this bill, and to commend it to the House.
A party vote was called for on the question,
That the Dairy Industry Restructuring Amendment Bill be now read a third time.
||New Zealand National 59;
Māori Party 3; ACT New Zealand 1; United Future 1.
||New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.
|Bill read a third time.