The CHAIRPERSON (H V Ross Robertson): We come to the Dairy Industry Restructuring Amendment Bill, and the question is that Part 1 stand part. I might say to members that debate is on clauses 5 through to 16 and the schedule. I call the Hon Damien O’Connor.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : Thank you, Mr Chairman; I appreciate that. It is great to see this Dairy Industry Restructuring Amendment Bill back in the House. It is one of the most significant bills, from an economic perspective, that this country has seen for a few years. It is, indeed, about the restructuring and recapitalisation of our single—

The CHAIRPERSON (H V Ross Robertson): Order! Order! Can I just say to members it is a longstanding convention that members should not conduct conversations in the Chamber unless it is necessary to do so, and then only so as not to disturb the proceedings. So would members leaving the Chamber please respect and show some courtesy to the member who is trying to address the Committee; it is good conduct, and it is being considerate of others.

Hon Trevor Mallard: And courtesy is contagious.

The CHAIRPERSON (H V Ross Robertson): Courtesy is contagious. Mr Mallard, that is absolutely right.

Hon DAMIEN O’CONNOR: Thank you, Mr Chairman and Mr Mallard. Thank you very much. Can I just go back. We are talking about Part 1 of the bill—that is, the amendments to the principal Act, an Act that was passed in 2001 by the then Labour Government setting up Fonterra, our single biggest company in the country, and it has been a success by most, if not all, measures. This bill was introduced, and the select committee process was a rushed one. The National Government thought it would rush it through before the farmers had an opportunity to vote on whether they wanted this to proceed. Indeed, in fact, the vote was a last-minute consideration. When the bill was introduced, both the Minister for Primary Industries and Fonterra said a second vote was not necessary. Well, thanks to the mismanagement of the National Government, the bill was delayed, and the farmers had an opportunity to vote on whether they wanted Trading Among Farmers to proceed. The result of that vote was that 66 percent of milksolids—that is, the amount of milk produced by farmers—supported the bill in principle and what we are doing here.

However, a closer analysis—and we have not had the true figures—would indicate that about 50 percent of the farmers voted for this, and 50 percent voted against us. That does leave this House and the National Government in somewhat of a dilemma. That is, indeed, why—well, if I can go back one step—there was a second vote to tighten up the conditions around Trading Among Farmers and the restructure of Fonterra. Those conditions would have lowered the threshold of what we call a unit fund—the fund that investors can buy into—with a number of other conditions as well. Only 72 percent of milksolids voted for that, when a 75 percent mandate was required. So that leaves Parliament and, indeed, Fonterra in somewhat of a dilemma—that is, the mandate to support Trading Among Farmers is, in theory, supported, but the conditions that the company, the Fonterra Shareholders’ Council, and the farmers were expecting actually have not been passed.

That is why Labour in Opposition is putting forward an amendment to this bill that will put in place a statutory limit on the size of the investment fund that investors from outside Fonterra can buy into. The limit of that fund will be 23 percent. We initially proposed a 20 percent limit, because Fonterra has indicated that it will—and, indeed, it did at the second vote—take to the farmers a proposal to lower the threshold from a 25 percent fund to a 20 percent fund. As I say, because only 72 percent of the farmers voted for that, we are left in a bit of a dilemma. Well, if the company, if the Fonterra Shareholders’ Council, if the farmers, and, indeed, if the Government are honest in their intent, the 20 percent threshold will not be exceeded. But it is—not yet, but hopefully—only a constitutional limit. We in Labour believe that a legislated limit is required, because Fonterra itself admits, the shareholders’ council admits, that the size of the fund is critical to ensuring New Zealand owner control of our single-biggest company. We are proposing and accept the 23 percent limit on the basis of negotiation with Fonterra management that it needs some headroom above the 20 percent to enable it to manage back down the unit quantum—that is, if the number of units exceeds 20 percent of the total equity capital of Fonterra, then it has a legal obligation to manage it back down below the 20 percent. We have accepted the 23 percent reluctantly but in negotiation with Fonterra, on the basis that the Government supports this also—and the National Party has yet to indicate its support for a legislated limit.

The logic around that is that this is the single-largest company in this country. It is 100 percent owned and controlled by New Zealand farming operations. There will be some who say that there are some foreign investors who own farms and who have shareholding by way of that ownership. That is correct. But every farmer owning a farm and supplying Fonterra through the cooperative structure is an owner and gets their return through milk price and through dividend streams. That cooperative structure has served this country and the dairy industry very well for well over 100 years. We are reluctant and are concerned about the recapitalisation, the ability of Fonterra to offer out securities in its own company to outside investors. We are concerned that that may change the focus of the company and undermine that New Zealand control and ownership. So we believe that we must limit the size of that fund. We look forward to the Government’s support for that, and I hope that other coalition partners and other parties in this House will do so.

There are other components of Part 1 of the bill that I will refer to briefly. The key issue in the changes is the establishment of a fair process to establish the raw milk price for Fonterra farmers. Whether they like it or not, the farmers who have voted for Trading Among Farmers will now have downward pressure on milk price and upward pressure on dividend streams, because those who invest in the unit fund securities will be seeking returns only through dividend streams and only through an increase in the unit price and, consequently, the share price. If it sounds a little bit complex, I have to say that it is. I do not profess to understand all the intricacies of the Financial Markets Authority and the oversight bodies and all the wheeling and dealing that will go on here, but what I do understand through many, many years of studying the dairy industry is that farmers are moving into a new league under Trading Among Farmers, and they should be fully aware of the dangers.

What the Primary Production Committee has attempted to do is establish changes that ensure a fair price, that do allow competitors—independent companies that might have innovative products to develop and that want to get out and find new markets around the world—to compete with Fonterra to get milk from farmers on a fair basis, but we also are trying to support Fonterra as a cooperative to maximise the return to its farmers through the highest price it can possibly pay for milk and a dividend on their investment in the company. The reality in the dairy industry is that the vast majority of the investment occurs in the land, in the plant and equipment, and in the stock on the dairy farms. The investment through shareholding and into the cooperative is a relatively small part. Farmers, for the most part, will always focus on the return through milk price as their primary source of income, and that is the way it should be under a cooperative structure.

However, the bill is changing Fonterra radically. It is splitting the focus of management into two streams: one of dividend returns to investors, and the other of milk returns to the farmer shareholders. As long as they fully understand that, that is fine. As long as they fully understood that when they voted for Trading Among Farmers, that is fine. But I say to the Minister in the chair, the Minister for Primary Industries, and I say to the Government, that the fact that only 50 percent of farmers in number voted to support Trading Among Farmers means there is a potential split in this company. The loyalty that has helped Fonterra to grow and develop may not be there into the future, unless the management and the board of Fonterra fully understand that the returns primarily must go back to the dairy farmers through the milk price and not just through the dividend streams.

Hon DAVID CARTER (Minister for Primary Industries) : To assist the debate, I want to make clear the Government’s position with regard to Supplementary Order Paper 85 in the name of the Hon Damien O’Connor. Can I first make the point with regard to this legislation, the Dairy Industry Restructuring Amendment Bill, that the Government has been aware for some time of the risk that the redemption risk posed to Fonterra’s ability to maximise growth potential for itself and for its farmers. On that basis, the Government has worked closely with Fonterra as it has developed a proposal to take to its shareholders called Trading Among Farmers. I do not accept the allegation just made by Mr O’Connor that I argued that there was never a need for a second vote amongst farmers. That was a decision entirely for Fonterra. Fonterra made the decision to have a second vote amongst its farmers, and it was supported by 66.5 percent of the farmers who voted. That is a mandate on which Fonterra has said it is proposing to proceed with Trading Among Farmers. The Government’s job, therefore, is to enable the legislation to proceed to enable Trading Among Farmers to proceed.

In the meantime, the Labour Party has got itself into a very difficult position, because the member who has just spoken, Damien O’Connor, simply does not understand the legislation. Indeed, he is not alone in that; there is a group of very vocal Fonterra shareholders who have failed to grasp exactly what this legislation is doing.

Having accepted that the vote has taken place, the Government is proceeding with the legislation to enable Fonterra to deliver Trading Among Farmers in November. It is not the Government’s position, therefore, that we accept what is probably a meaningless Supplementary Order Paper in a position to try to buy Labour’s support on this legislation. If Labour has chosen not to support the dairy farmers of New Zealand, who have voted in a very public manner, then that is a decision for the Labour Party to make, and I accept that it has got every ability. But with regards to supporting a Supplementary Order Paper that then starts to interfere with the constitutional matters of Fonterra, the Government will not support it. The Government will not support it.

It is interesting to note that Fonterra shareholders themselves had a vote on the size of the fund and they voted against it. I understand they are going to run a further vote later this year, and that is where this matter should be determined. It should be determined by Fonterra directors and its shareholders with votes at annual general meetings. It should not become part of public policy and passed here in the House in an effort to save the embarrassment of the Labour Party, which has misinterpreted where Fonterra’s shareholders would vote. My job here is to facilitate this legislation to give Fonterra and its shareholders the best opportunity to create wealth for themselves and wealth for New Zealand, and I wish them the very best of luck in doing so.

GRANT ROBERTSON (Deputy Leader—Labour) : Well, was that not an interesting contribution from the Minister in the chair, the Minister for Primary Industries? It was an incredibly disappointing one too, because the Labour Party—and, in particular, the Hon Damien O’Connor—has gone to considerable lengths on this bill, the Dairy Industry Restructuring Amendment Bill, to try to find an outcome that assures New Zealanders and assures farmers and Fonterra’s shareholders that this will be a robust process by which New Zealanders and farmers will know that the value of Fonterra remains largely in the hands of New Zealanders. To have the Minister stand up and say that this is something that should be dealt with only by the Fonterra shareholders and should be dealt with only in the constitutional process ignores the fact that this whole bill is before Parliament because Parliament is making the acknowledgment that we need to look after our largest company, and that farmers fundamentally want to see the cooperative status of Fonterra retained. That is what farmers want, and the concern that is out there is that this bill is, in fact, a precursor to saying that Fonterra should be floated on the stock market. It is all very well for the Minister to say: “Well, that’s not going to happen.” Well, John Key said he thought it would be great—he said he thought it would be great if Fonterra was floated on the stock market. So farmers will not be assured by the Minister standing up today and dismissing the notion of a legislative statutory limit around what can be onsold in terms of shares within the newly established cooperative.

A constitutional limit is all well and good, and that may or may not be the outcome of a future vote among the Fonterra shareholders. What Parliament gets to do is make a law that ensures what New Zealanders and what farmers want—that the cooperative status is retained and that New Zealanders know that the interests in Fonterra will remain largely in New Zealand hands. At the moment that assurance is not here in this bill, and I think it is perfectly legitimate for members of Parliament like Damien O’Connor to propose, as he has proposed in his Supplementary Order Paper 85, a limit of interest in terms of cooperative shares. It is perfectly legitimate. It also comes from discussions with Fonterra and from discussions with farmers.

The Minister likes to make a lot of the mandate question. The problem is that what we do not know for sure today is how many actual farmers support this—not the vote in terms of interests in milksolids, but how many actual farmers. It could be as little as 50 percent. We could have half of the farmers involved in Fonterra actually not supporting this proposal. So why not, then, give some assurance to the people of New Zealand? Why not give some assurance to the farmers? Why not give some assurance to everybody who cares about protecting the cooperative status and support the Supplementary Order Paper? Why not do that? That would give the assurance that New Zealanders are looking for, but instead what it does is leave open the suspicion that this Government wants to float Fonterra. That is what John Key said. He thought it would be great. That is why it is deeply disappointing to hear from the Minister that he does not intend to support the idea of some kind of legislative cap.

We know that there are farmers out there who do think this is the thin end of the wedge in terms of demutualisation, and New Zealanders overwhelmingly—and we would have thought the Government would pick this up in recent months over the asset sales debate—are concerned about the idea that the value in our primary sector is going to go overseas, the idea that the value of what we own and what we control as New Zealanders is going to disappear, and the notion that a cooperative that has served our country incredibly well over the recent decades will now lose that ability because there is no cap, because we cannot be absolutely certain about where this will go.

Damien O’Connor has proposed in his Supplementary Order Paper a cap that is 3 percent higher than what Fonterra is looking at in terms of its own constitution. That is wise because it gives Fonterra the ability to manage what may or may not happen in terms of the movement of shares—the changes that might happen at random that would push it over the 20 percent cap. We think National can support this. We think National knows that it is a good idea. The Minister is shaking his head, but National knows this is a good idea because it provides assurance. If it does not support it and if the Minister says: “No, we are not going to do that.”, then all that does is open up the suspicion—

Hon Nathan Guy: He’s told you that—if you’re listening.

GRANT ROBERTSON: Well, Nathan Guy says the Minister has told me that. What the Minister is telling New Zealanders is that there will be no legislative guarantee about the interests of Fonterra staying in New Zealand hands. That is what the Minister has said. That is what the Minister is telling New Zealanders—that there is no guarantee and that this Government is not concerned about whether the value of Fonterra stays in New Zealanders’ hands. It is not concerned about whether half of farmers may not actually support this.

So it is deeply disappointing, from the Labour Party’s point of view, that this Supplementary Order Paper that Damien O’Connor has put forward, which actually has been worked through with Fonterra, is not being supported. This is not something that the Labour Party is doing, as the Minister might allege, because we do not understand the bill or we are trying to curry some kind of favour; it is because farmers around New Zealand are worried about this. All the Government needs to do is support a Supplementary Order Paper like this, which will bring the Committee together behind our largest company. We do want to be able to support Fonterra in what it does, and support it in retaining its cooperative status.

It is quite clear, from the Labour Party’s point of view, that the Government does not believe that it has an obligation to provide certainty for New Zealanders. It does not believe that it needs to protect those billions of dollars in assets that are in cooperative hands inside New Zealand, but rather to open this up without assurance for the future control of those profits. It is deeply disappointing, and, unfortunately, from the Labour Party’s point of view, this puts in danger our support of this bill, when a simple agreement to something that Fonterra itself wants would enable Labour to support the bill.

SHANE ARDERN (National—Taranaki - King Country) : It is a privilege to rise and speak in this debate today in the Committee stage of the Dairy Industry Restructuring Amendment Bill. Before I do, though, I need to declare an interest as part of a trust that has shares in Fonterra. Can I assure Parliament and those who have just spoken that it is in the DNA of most dairy farmers—the one who is speaking to you being one—to maintain 100 percent ownership in Fonterra. It is absolutely in their DNA.

Damien O’Connor: 50 percent.

SHANE ARDERN: I heard the contribution from the other side about it being as low as 50 percent. There is nothing to back that up. In fact from my own research out there as to whether it was the big corporate farmers versus the hard-working mum and dad farmers who voted in this vote yes or no, I would suggest the split of those who were concerned was equal between the larger shareholders or milksolids providers and the ordinary mum and dad farmers. There is no evidence to say that support is as low as 50 percent. It would be interesting to know the outcome of that, but it is not relevant to this debate. So I would suggest that members concentrate on the facts: 66 percent of those who voted through milksolids voted in favour. That is a mandate by any comparison with anything that happens in this Parliament.

The fact that the vote for constitutional change required 75 percent but only achieved 72 percent is disappointing, but I am sure it will be rectified, as the Minister for Primary Industries said, when the next opportunity arises. If not, then that is the decision of the shareholders themselves. To suggest, as some have, that the 10,400 independent business people who are the shareholders of Fonterra do not have the wit, the intelligence, the ability, the knowledge, the understanding, the ability to get the right advice, and the ability to look at the facts and on balance make a call is insulting to the 10,400 shareholders who have made that call. The fact that this company and this industry over the last 8 years have seen something like a 280 percent increase in turnover—280 percent—and now represent about 25 percent of the total export earnings from this country suggests, I think, that this group of individuals do have the wit, the ability, the lifestyle, and the interest at stake to ensure that the decisions they make going forward are in the best interests of their own industry, plus the best interests of “New Zealand Inc.”

If members opposite believe that there is an entity, a structure, or a company in New Zealand that has more of “New Zealand Inc.” at heart than this company has, then suggest them, bring them forward; I have not been able to find them. Maybe my research is not wide enough, but to suggest that this company does not have at heart the best interests of New Zealand or “New Zealand Inc.” is, I think, actually insulting to the facts.

Fonterra is a priceless asset to New Zealand dairy farmers and it is a priceless asset to New Zealand. Farmers in many parts of the world are very, very envious of the structure we have. They are also very, very envious of the market structures that are being developed. But that does not get past the fact that this company was faced with a substantial redemption risk. In fact, it was built into the formation of the company, if you go back to the history of it. And, of course, that was with the compromise that must be struck between free entry and exit existing so that you can have a dynamic dairy industry in New Zealand and having capital that can flow in and out freely. This is a very, very good solution to that problem, which is to have an ability for those who, for whatever reason, wish to divest themselves of the dividend rights in the shares into a separate custodian group that will be able to trade those dividend rights, and overcome the substantial redemption risk that exists.

In the process leading up to this, there has been some interesting debate. I am reminded of Gareth Morgan, actually, saying in 2004 that the dairy industry was dicing with disaster. Gareth Morgan said in 2004 that the industry was dicing with disaster and that the industry should look upon a different structure. He was referring to the risk that existed from redemption, but he could not have been more wrong, because as I said earlier on, there has been a staggering growth rate since those comments were made. This company now is the envy of the world in terms of its ability to trade into, and compete within, 150-odd different countries in the world—some of which have industries bigger than Fonterra, and some of which have industries bigger than the New Zealand economy. Others have tried. There are plenty of examples where others have decided they can enter into the niche market, in the very sophisticated end, of the product range and achieve a dividend for it. So far the evidence of them being to do that is at best marginal, at best challengeable. But some will no doubt achieve that and I hope that they do because it is in the best interests of New Zealand and the industry at large that there are a number of players who can compete at farm-gate price.

Part of the process being debated here is about how that farm-gate price will be set, and it is interesting to note that the concerns raised by Opposition members about what may happen with the size of the tradable fund have taken precedence, when probably the most vexed issue or question in the whole debate so far has been how that farm-gate milk price may be set and what intervention the State may have in regard to that. The compromise that has been met in this bill is that the milk price manual, which is set out and publicly released by Fonterra, is now going to be enshrined in legislation. The independent panel, which feeds information into that manual, is going to be there by statute, and the Commerce Commission itself will finally have an annual ability to oversee how that process takes place.

The Commerce Commission raised some issues with the Primary Production Committee that were very interesting. The select committee did what it could to address those issues. I think that the position we have finished up in is one of compromise, without doubt, but it is certainly something that will assist the industry with the issues it raised. I think we should not forget that it was the industry itself that raised the concerns with the Government and came to the Government for amendments, and the end result of those amendments and negotiations is what we have here today. It has been a privilege to have been a part of that process, and I look forward to the passage of the bill through the House.

STEFFAN BROWNING (Green) : Before I start to speak on the Dairy Industry Restructuring Amendment Bill I would like to take just a minute to pass on condolences from the Green Party caucus and staff to the family and friends of Dave Allanson. Dave Allanson was, as many of you know, a much liked member of the staff here in Parliament. He did 23 years in Parliament. I was one of the new people here, but he was an important person already, and I appreciated him a lot. So the Greens would just like to acknowledge Dave in this instance.

The Greens oppose this bill, and we have certainly stated that before. We do not believe that Fonterra or this National Government have 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. The Greens believe that it is likely that it may even be slightly under 50 percent of actual farmers who voted for this. The Minister for Primary Industries said it was 66 percent of the farmers who voted. Where are the figures? How many farmers actually voted for Trading Among Farmers? It is not how many votes. Fifty-three percent in terms of milksolids voted for Trading Among Farmers. This does not reflect how many farmers, but how many votes the huge corporate farmers are carrying these days. My understanding is that 80 percent of that 66 percent may not have been the little family farmers. The Minister, Fonterra, and the Fonterra Shareholders’ Council need to front up with the real numbers. None of them are supplying the real numbers of how many actual farmers voted for Trading Among Farmers. This Committee needs to know how many actually supported Trading Among Farmers.

Fonterra informed its members and the community poorly about redemption risk, and we have heard it again from the Minister. This bill is not needed. The retentions that have been held by Fonterra in the past—significant retentions in sequential years—show that this redemption risk is not needed. Retentions cure that. So neither Fonterra nor the National Government has this mandate.

I would also remind all those involved in primary industries how the poultry industry votes as well—by eggs or chickens, not by the farmers. Individual farmers get affected, and individual dairy farmers get affected, and having big industry moguls dominating and pushing does not reflect what is needed for New Zealand family farmers.

This bill is very much, as we have stated before, the cousin of the asset sales legislation, which was passed with a similar push by the National Government. This Government is into selling out everything, not just our power companies, Solid Energy, Air New Zealand, and those sorts of things. 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, often enough, to overseas interests. We already have a major sell-out of forestry in this country. We are having a sell-out of power companies, and we are having a sell-out of dairy. What next—we need to ask the Minister for Primary Industries—does he intend to sell out of New Zealand’s primary industry, which is the basis for the backbone of New Zealand? What else are we going to be selling off to overseas interests?

Hon MARYAN STREET (Labour) : I rise to speak on the Dairy Industry Restructuring Amendment Bill. I particularly want to focus on the proposed amendment in the name of the Hon Damien O’Connor, and I will come to that in due course.

Fonterra is our largest company. It employs 15,000 people, and it is known internationally for not only the quantity of its product but the quality of it as well. In 2010-11 Fonterra’s exports were worth in excess of $10 billion. I suppose I am coming at this from having previously been involved as a shadow trade spokesperson, but it seems to me that anything that risks any of the operations of Fonterra needs the closest possible scrutiny. I am not satisfied, not having been on the Primary Production Committee but having heard from my colleagues and having read the minority reports of the Labour Party and the Green Party, that that due diligence has been undertaken in respect of this legislation. Quite a lot of the commentary around the passage of this bill has been to do with haste, to do with inadequate advice, and to do with advice that did not take all considerations into account. So I have an anxiety that our very largest company, and one that is unique and internationally renowned, could be at risk of some of its own profits going away from New Zealand.

The proposal that my colleague the Hon Damien O’Connor has put up is to limit the proportion of Fonterra shares that can be sold into the shareholder fund and bought as securities by outside investors. He has put the limit at 23 percent, slightly higher than Fonterra’s requirement, which would provide a cap and a protection on the quantity of shares that could be onsold. This is worthy of consideration. I do not think it should be dismissed out of hand, as the Minister for Primary Industries, in his contribution previously, did. I think it is worth consideration, because there is something—as the speaker before me, Steffan Browning from the Green Party, said—that rings true. He called this bill the cousin of the State asset sales legislation—the cousin. I wonder whether this Government has any method of dealing with any major money earner in New Zealand other than selling it. Is there any other possibility that this Government might consider for the treatment of those enterprises in New Zealand that earn a dividend that goes back, in the case of Fonterra, to the cooperative members? This is a wonderful model that has been in existence for a very long time, for something in the order of a century, and this cooperative model has served Fonterra, and therefore by extension New Zealand, extremely well.

The cooperative model is admired elsewhere around the world, and to carve off some of it and to make some of it open to foreign investors presents risks, in our view, that there will be something of the cooperative nature of the organisation lost in the process. That is not something we believe that a clearly demonstrable majority of farmers want. I heard the Minister refer to a 66.5 percent majority vote, but clearly there has been concern that the vote of those who were present to vote, or who did return a vote, does not represent a majority. It is not clear that that represents a majority of the actual farmers. It seems to me that we are beginning to see from this Government a redefinition of the word “majority”. The Government thinks it has a majority of support for the sell-down of 49 percent of State assets. Well, many people around the country do not believe the Government has majority support for that, and having a majority of one in the House for controversial legislation such as that does not denote a wide underpinning of broad-based support.

The same thing might be said here. There are parallels with the State asset legislation. In other countries that have looked to the cooperative model, they are coming out of a different environment. They are coming out of a business environment that relies on foreign investment and relies on foreign ownership, and therefore succumbs to the divesting of profit out of the country. I think about Uruguay in particular, where Fonterra has had interests previously. There is a farmers association in Uruguay that is looking to the cooperative model in order to retain the interests of the farmers and the profits that they produce within that country.

So it seems to me that the Trading Among Farmers option in this legislation is something that does not sufficiently guard against the disruption, the corrosion, and the final debilitation of the cooperative model, and will allow profits to go offshore, when one of the most compelling things about this cooperative model is that the farmers themselves have been able to benefit from it, by extension their immediate communities have been able to benefit from the profits going back to the farmers, and by extension the whole of New Zealand profits from that as well. Unless this cap is put on, in accordance with the Hon Damien O’Connor’s Supplementary Order Paper, we will have enormous difficulty agreeing to the passage of this legislation. Thank you.

COLIN KING (National—Kaikōura) : This is the Committee of the whole House on the Dairy Industry Restructuring Amendment Bill. The bill is making good progress. It is what the majority of the milk suppliers of Fonterra wish for, and it needs to be stated quite clearly. It is a very interesting situation that the Opposition finds itself in, especially when you listen to—

The CHAIRPERSON (H V Ross Robertson): Order!

COLIN KING: —sorry, Mr Chairperson—the two debates. One is from the Greens and the other one is from Labour. It must terrify the primary industry when it thinks of that combination and the terrible damage that that would do to the very basis of the New Zealand economy. When we look at Supplementary Order Paper 85 in the cold light of the facts that present themselves, we do see that it clearly is the Labour Party trying to dig itself out of a position that it placed itself in. Setting the limit for the cap, as was spoken of by the previous speaker, the Hon Maryan Street, at 23 percent just goes to show how ineffective it would be, in the sense that the intention under the constitutional vote at the next annual general meeting is to actually limit it to well and truly under that. So it is more of a platitude to try to get back into the situation and be able to see the positives that this particular bill presents.

It is very interesting to also consider that in setting up Trading Among Farmers, and there has been a lot of talk about setting it up, there is no guarantee that it is actually going to meet the expectations and aspirations. As any good Government would do, there is also a very appropriate means by way of taking action that will ensure that the value that Fonterra represents to the New Zealand economy and to the farms that are involved in the industry is retained.

When we go to the Dairy Industry Restructuring Amendment Bill, we see that proposed new sections 109A to 109L in clause 8 set out a very prescribed process that requires communication from Fonterra to clearly identify and provide the evidence that would be necessary to tell the Minister for Primary Industries that, in actual fact, an alternative programme needs to be put in place. That would be a programme whereby a fair value share would be established. Although everybody is going on about Trading Among Farmers, there is in this bill a framework whereby if in fact it does not address the redemption risk to which Fonterra is exposed, it provides a mechanism to establish the fair value of a share. That is something that needs to be really looked at and concentrated on, because, although the organisation of Fonterra is trying to maximise returns back to farmers, there is no silver bullet for a lot of these things. The Government has tested the thinking of Fonterra, and it needs to have that rescue net beneath it in the event of Trading Among Farmers not actually attracting the interest of outside purchasers of the economic value of those shares.

This is a very good bill. It does worry me when we hear talk of caps, because a 23 percent cap sounds all very nice and wonderful, but what I have heard from the other side of the Chamber is that it wants to cap the number of dairy farmers in this country. That has been a public comment that has come out, and it just sort of starts to paint the Opposition members in their true light as dislikers and haters of the primary sector. When they look at any opportunity, they will do their utmost to actually rip revenues out of the primary sector for other use. They do not think about looking for efficiencies or providing opportunity for economic growth; they look at ways to gain money out of the primary industry to squander on other, reckless ideas.

It was an absolute pleasure to work along with the Primary Production Committee on this particular bill. I would have to say that a lot of concentration was put on just how we would arrive at the dairy milk price, because the bill itself opened us up to a whole lot of dialogue that raised questions about contestability. That draws my attention to the amendment in the name of Te Ururoa Flavell. We are quite confident that in the select committee we have set the scene at a very high but contestable level. We recognise that there will be major interest within the dairy sector of new entrants, and, thus doing, we as a committee were very conscious not to buy into some of the information used as a base study for setting the farm-gate price. When you looked at Deloitte’s research into that, it was quite aged and it had some inconsistencies around the product values put into the farm-gate milk price. I am very, very conscious that there will be significant Māori interest in the dairy industry. Māori today represent 10 percent of the primary industry. On that basis, we considered it quite fully and we took very good advice. However, we appreciate the thought of the member in putting that amendment forward.

I am very pleased to see that Part 1 of this bill addresses the fundamental framework of Trading Among Farmers, should it fly, and I wish Fonterra all the very, very best. If it does not actually work out and cover off the redemption risk, as it is hoping, then I am confident that what is considered in proposed new section 109 and right through that section will address the fair value share price. Thank you very much.

RICHARD PROSSER (NZ First) : I am pleased to take a call in the Committee stage of the Dairy Industry Restructuring Amendment Bill. I think it is a great shame that the National Party, as the Minister in the chair, the Minister for Primary Industries, has indicated, is not going to support the Hon Damien O’Connor’s Supplementary Order Paper 85, which is proposing to place a 23 percent cap on the size of the shareholder fund, because I think if the Government were to do that, it would be very much a sign of good faith in so far as this process is concerned. New Zealand First does remain opposed to the passage of the bill for a number of other reasons, but we are prepared to support the Supplementary Order Paper as it stands. We believe that if a cap is placed in legislation on the size of the shareholder fund, relative to the totality of Fonterra, that will make the bill a less bad thing than it currently is.

It is contentious that Parliament is debating this bill at all. It is a bill that regulates, essentially, a private industry, but at the same time it is a private industry that has come to Parliament and to the Government in the past to ask for itself to be regulated and to be allowed to operate outside of other regulations. Obviously, Fonterra was created as a creature of statute to be allowed to be a virtual monopoly. It was recognised by the Parliament of the day that, as a virtual monopoly, Fonterra’s size and its strength would be of great benefit to “New Zealand Inc.” as a whole, and history has shown that that is very much the case. However, over the last 10 years things have changed a little, and there is a desire amongst some to evolve the path, I believe, of Fonterra. It is Fonterra’s own desire, and the desire of Fonterra’s shareholders, to evolve and to continue growing their business, and to do this they tell us they require greater capital. There is also the spectre of redemption risk, which faces any co-op, and for these reasons this amendment bill has come before Parliament.

We in New Zealand First believe that the redemption risk has been somewhat overstated. We do not believe that it is the great demon that it has been made out to be, and we believe that if there is real redemption risk, this can be dealt with in other ways than the Trading Among Farmers scheme. Trading Among Farmers, the TAF scheme, is probably the most contentious part of this bill as it stands. But, as Mr Ardern alluded to earlier, it is probably clouding the other major part of the bill, that being the milk price - setting mechanism, which is just as important and has probably slipped into the shadow a little bit because of the contentious nature of Trading Among Farmers. I think it is a shame that the monitoring regime is in place in the bill as it is, because, as the Commerce Commission found and as other investigations have found, the manner in which Fonterra sets its farm-gate milk price is reasonably fair anyway and is probably a fair reflection of what would be the case in a genuinely open market anyhow. So it probably does not need to be changed, and it certainly does not need to be mucked around with.

However, there is a potential that if there is this supposed outside oversight of the way Fonterra sets its milk price, then that milk price may be subject to influence from people who do not necessarily understand the industry, and who do not necessarily understand or appreciate the real thrust behind a cooperative, which is essentially to maximise returns to its owner-shareholders, who are its investors. We believe that the primary philosophy behind the setting up of Fonterra as a major co-op—that being to maximise the farm-gate milk price—is a good one. It should be adhered to because it maximises returns to New Zealand farmer-shareholders without allowing a major part of that profit stream to be generated from external sources such as dividends and so forth from share trading. Trading Among Farmers, of course, is the instrument that will allow that to happen.

Our concerns about Trading Among Farmers are primarily, as has been stated earlier in this debate, about Trading Among Farmers as it is now proposed and as farmers voted on. We can argue the numbers back and forth—and that is probably a pointless argument now, because farmers did vote in favour of instigating the Trading Among Farmers scheme. But we do not believe that they understood it fully. We do not believe that they were given all the information. Certainly, I do not believe that the Primary Production Committee had time to assimilate all the information, nor to assimilate all the submissions, and we believe that there is still a great deal of contention around that. However, it is certainly not the scheme that was originally offered to them, or the scheme that was guaranteed to provide 100 percent farmer ownership and control, and we do not believe that the Trading Among Farmers scheme as it is proposed can do that.

If the Trading Among Farmers scheme was simply trading among farmers and did not require outside investors, then that would be a great thing, but because of the numbers that are required in order to make the shareholder fund work, it appears that Trading Among Farmers cannot work unless it has outside investors, which to our way of thinking suggests that it is probably not the right model for Fonterra. There are other ways in which Fonterra can raise capital if it needs capital. They essentially all come down to retention in one form or another. We have had it suggested to us that 30c a kilo retained over 3 years would raise $1 billion for Fonterra, which—

Hon DAVID CARTER (Minister for Primary Industries) : The member who has just spoken, Richard Prosser, suggests that we should accept the amendment proposed by the Hon Damien O’Connor as a measure of good faith. As I attempted to explain to the Committee earlier, this is about passing legislation, the Dairy Industry Restructuring Amendment Bill, and being involved in this legislation where we need to be. It is not about telling Fonterra the size of its fund. That is clearly something that Fonterra has recognised is its business. That is why it proposed a vote on it in the last referendum it had amongst its shareholders. But if I want to give the member any advice around operating with good faith, and if the member ever wants to successfully move a Supplementary Order Paper with a Government, then in engaging in good faith the member should discuss it with the Government. It would be worth noting to the Committee today that the earliest I knew of this amendment by the Hon Damien O’Connor was at approximately 10 o’clock this morning, when he emailed it through to my office. So that does not suggest to me good faith. But, regardless of that, I do not intend to involve myself in passing legislation simply to establish good faith when I know that public policy wise it is wrong.

The second comment I want to make is about the one that is coming from the Labour Party that this is the demise of the cooperative. Give the shareholders of Fonterra far more credit than that, and stop belittling them. If they thought for one minute that this was the demise of the cooperative, they would not have voted for it. They are not dumb. These people are bright business people with huge investments in their farms and in their shares in Fonterra. They have analysed this issue carefully, there has been a huge amount of press for them to be involved in to understand the issue, and the vast majority—66.45 percent—voted for it. That is an absolute clear majority. How Damien O’Connor can interpret that as 50 percent leaves me absolutely speechless.

The last point I want to comment on is a further Supplementary Order Paper 82, which I have presented for the Committee. I have presented this Supplementary Order Paper, which moves the existing text from section 150C(1)(ba) into the purpose statement for the milk price regime in section 150A. In particular, section 150C(1)(ba) stated that “any notional costs, revenues, or other assumptions taken into account in calculating the base milk price must be practically feasible for an efficient processor.” Moving this to the purpose statement directly links the requirement for assumptions to be practically feasible with the achievement of contestability. This is intended to improve clarity in relation to the existing Government policy; it does not represent a change in Government policy—it does not represent a change in Government policy.

TE URUROA FLAVELL (Māori Party—Waiariki) : Kia ora, Mr Chairperson. Tēnā koe. Kia ora tātou katoa. I just want to take a brief call to make sure, on the record, that we speak to the amendment in my name, and that we put the Māori Party case in the discussion about that amendment. I do appreciate the comments from Mr Colin King in respect of the discussion at the Primary Production Committee. Unfortunately, we were unable to be there. But he would appreciate as much as, probably, most of us in the House that we have been lobbied pretty hard from left, right, and centre as a Māori party, so it is incumbent on us to put a view and, indeed, put up amendments that we believe are acting in the interests of those people who have lobbied us, as best we can. Of course we are talking about 1,700 dairy industry workers, farm owners, farmers, and farmhands who, as others have said, are Māori who are in this industry. So it is important that we put their case forward.

In the bigger picture, the Māori Party is focused on empowering communities, whānau, and hapū to develop responses to issues like these, which is great. That impacts on them; it is important that they have a say. We want to invest in business and Māori communities that incentivise Māori privately and collectively owned business growth. We want to ensure that there are opportunities for partnerships, joint ventures, and other economic development collaborations with Māori people and tangata whenua, and we also want to be committed to establishing effective strategies for engaging Māori communities and advancing Māori representation.

These are pretty huge goals, a tough ask, but they do lead us to ask one question of the Government, and it is this: why is it that the Government is insisting on imposing a competition policy test on the dairy industry that is different from, inconsistent with, and tougher than the standard that applies to every other industry in New Zealand? That is the question. For our part, we want to ensure that those 1,700 dairy industry workers, farm owners, farmers, and farmhands who are Māori, and those Māori industries such as Miraka, stand to benefit from the same opportunities as every other industry.

I said earlier that we have been lobbied, and we have also gone the opposite way and canvassed widely, including various Māori trusts and incorporations. Many of these trusts supply Fonterra directly—some do not. We have also spoken to independent milk processors who act in competition with Fonterra. Generally, we accept that the interests of Māori farmers lie with the fortunes of Fonterra, since most of their farms are basically with it. It is for that reason that we intend to support, with amendment, the Dairy Industry Restructuring Amendment Bill. But I did want to point out that we have been concerned with the lack of the definition around the term “contestability”. We have broached it with a number of the other parties, and I suppose the proof will be in the pudding shortly, when it comes to the vote.

We wish to ensure that whilst supporting Fonterra to be as successful as it possibly can, we are clear that we do not want to stifle the whole notion of potential competition in Aotearoa. We have therefore suggested two amendments that provide some clarity around competition in this particular sector. We are particularly proud of the efforts of Miraka and its achievements to date, as we are also proud of Fonterra as it has gone about its work. And although our farms still supply to Fonterra, we need to ensure that they are able to become independent milk processors also, if that is indeed their journey.

We believe these amendments will assist in that journey. The amendment in my name comprises two amendments. If I could mention them briefly: firstly, an amendment to clause 5 that is a definition of the term “contestability”, which is a critical term in both sections 4(f)—in other words, the purpose of the bill—and section 150A, the purpose of subpart 5A. The amendment reads as follows: that contestability, in relation to the New Zealand market for raw milk, means a market for the purchase of raw milk from farmers “in which a competitor to new co-op that is at least as efficient as new co-op could expect to earn a reasonable return on its efficient investment, and contestability has a corresponding meaning.” The intent of this change is to restore a level playing field in the dairy industry by removing Fonterra’s ability to set an artificially high or stretched milk price.

The second amendment, which is to new section 150A in clause 13, is to replace the word “while” with the word “by”. It is pretty insignificant in some senses, but quite important in the bigger picture. It is intended to clarify the relationship between the two heads contained in this section—that is, an efficient Fonterra and contestable markets—by stating that you get an efficient Fonterra via contestable markets rather than an officially high milk price. These are our two amendments, which I suspect may not necessarily get overwhelming support, but they are certainly our response to lobbying and to the information given to us by both sides. As I say, we are prepared to support the bill, but we hope that consideration is given to this issue of contestability in particular, as it is a crucial issue that has been expressed to us by a number of people. We have placed it in front of the Parliament, and I suppose we leave it for Parliament to make a decision accordingly. Kia ora tātou.

Hon PHIL GOFF (Labour—Mt Roskill) : Mr Chairman might find that the price of his hay goes up! I want to speak to the amendment to the Dairy Industry Restructuring Act 2001. I was a member of the Cabinet of the Labour Government that put through the original Dairy Industry Restructuring Act. It is probably one of the most important pieces of legislation affecting the rural community and our dairy farmers. I say to the Minister in the chair, the Minister for Primary Industries, that what I remember about the passage of that bill was that we were very careful in how we passed that legislation through. We consulted fully, we took our time, we got it right, and actually we won the support of every political party in this House. I want to suggest to the Minister, in good faith, that you do consider the Supplementary Order Paper in the name of Damien O’Connor. Well, I do not want you to shake your head; I want you to listen to my argument, because I have listened to the Minister’s arguments against that. I understand that the Minister may be a little upset that he did not have greater notice of this amendment, but I understand that the reason for that is that the member in whose name the amendment appears has spent time working with Fonterra to ensure that it fully supports this amendment, and my understanding is that it does fully support this amendment.

Hon David Carter: No, they don’t.

Hon PHIL GOFF: Well, the Minister can take another call, and I would invite my colleague Damien O’Connor to, because that is my clear understanding—that this amendment is supported by Fonterra.

I remember that the biggest controversy about Fonterra was actually its name. We had solved the problems, we had got a consensus in the House—and that was a good thing—but people were not sure that they liked the name. The real concern of the public about the Dairy Industry Restructuring Act was that the cooperative nature of farm ownership be protected. That was the first thing. The second concern was that the shareholding of New Zealand’s largest company, in its most important area of the economy, was a New Zealand - owned company and that its shareholding and its profits did not pass out of this country and overseas. That concern remains today. This bill, the Dairy Industry Restructuring Amendment Bill, in my view, does not provide that assurance. There is no limit on the amount of investment bonds that can be bought, and therefore on the share of the profit of our largest company that can go overseas. There is no limit legislatively on that.

The Minister raised the curious argument that this would be interfering with Fonterra. Well, I have to say to the Minister that Fonterra is a creation of the very piece of legislation that we are amending. It is a creation of this House, and because it involves 15,000 workers, because it exports $10 billion to $11 billion worth of produce out of this country each year, because it is our biggest company in the most important sector of the economy, then there is every reason why this House should make sure that the interests of farmers and of New Zealanders be protected. I want to see the interests of New Zealanders protected so that we do not start at the top of a slippery slope and see the ownership of this industry and this company go out of New Zealand, and the profits flow out of this country. I know that does not matter to this Government. It is keen to sell our State assets—our electricity companies—it is keen to sell the land, and Colin King says that the Opposition wants to put a cap on the number of dairy farmers. For heaven’s sake, Mr King! Mr King will know that the number of dairy farmers in this country has declined in the last few years from 14,500 to 10,400. I think that was Shane Ardern’s number. The number is going down, and if we keep on selling the farms, as we have the Crafar farms, more and more of those farms will be owned overseas, and we will lose control and profits by a different avenue. But I want to ensure that in passing this legislation we protect the money that is made from our most important rural industry—our biggest export sector. I want to make sure that that money stays inside New Zealand. I see Supplementary Order Paper 85 in the name of Damien O’Connor as an effective way of ensuring that, and a way that Fonterra itself is comfortable with. It may be that 23 percent is a little higher than what it has set or would set—

Hon DAVID CARTER (Minister for Primary Industries) : The member Phil Goff has asked whether I could comment on Fonterra’s support for Supplementary Order Paper 85 in the name of Mr Damien O’Connor. The first thing is that I can assure you the Government has not taken a position on the basis of the lack of consultation from the Labour Party with the Government—the fact that it has operated in bad faith rather than good faith. I would expect nothing else from Damien O’Connor, frankly.

With regard to Fonterra’s support, I have spoken to Fonterra. It does not support this amendment. It is prepared to accept it. It intends to operate the fund at probably around 10 percent of the total shareholding. It moved, itself, a constitutional motion in the last vote to limit it to 20 percent, and it intends to do that again. So Fonterra’s attitude is that, if Mr O’Connor strikes it at 23 percent, it will be so far above the threshold of any intention of Fonterra to operate the size of the fund that, frankly, it is meaningless. On that basis I have said it will not do any harm. So it is quite incorrect for Labour members to stand in this Chamber, on the basis of the conversations I have had with members of Fonterra’s directors and management, and claim that Fonterra supports this amendment. It is prepared to put up with it.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : I take the opportunity to counter what the Minister in the chair, the Minister for Primary Industries, has said. We have been negotiating in good faith with Fonterra for the last 2 months on this issue. In fact, the proposal was that Fonterra wanted our support for the Dairy Industry Restructuring Amendment Bill prior to the vote taking place, and on the basis that it agreed to a legislative cap on the fund’s size. This was at a time when there were proposals put to farmers that were yet to have any endorsement.

Well, we are, I guess, lucky to have the clear view of the farmers, regardless of the debate over how many farmers support it or otherwise, and we have continued to discuss in good faith with Fonterra whether there is value in having a legislated cap. The fact is that the second vote did not reduce the proposed cap from 25 percent, as agreed in principle 2 years ago, down to 20 percent, which is what Fonterra took to the farmers prior to the vote, saying that it would reduce to 20 percent. We went back and in good faith negotiated with Fonterra around the technical issues, taking advice from Fonterra on how best to structure the amendment. We had discussion as to why we should not legislate for 20 percent, which was my preferred option.

But the Minister stands up in the Chamber and says: “Oh, well, Fonterra is going to manage it at about 10 percent, so the headroom between that and 20 percent is huge.” Well, I agree with that, Minister. But Fonterra itself came back and said it wanted it at 23 percent, because the trigger point is 18 percent, at which time it will start to take action—and I am happy to, and will later in the debate, table this for the Minister’s edification—and we were happy to accept Fonterra’s argument that from 18 to 23 percent was a 5 percent headroom space that allowed it to reduce the fund’s size without any potential for legal penalty. We worked through that process, knowing full well that Fonterra was at the same time negotiating with the Government, because Fonterra and the Government—rightfully—have been in close association negotiating through this the whole way, and that is as we would expect.

The Minister stood up in the Chamber and, firstly, claimed that my amendment was late notice. I think he has admitted that perhaps that is not the issue he first said it was, because he knew full well what was going on here. In fact, I had indicative notice that the Government, although not comfortable, had not made up a call. I understood that. I was hoping that the Minister might have seen wisdom to do this in the Committee today. He has chosen not to, and the question I ask is why. I come back to the point: in good faith we accepted Fonterra’s advice to move from the 20 percent cap that we proposed to a 23 percent cap. Now the Minister is coming back and saying: “Oh well, it should be at 20 percent because Fonterra is going to manage it at 10 percent.” I tell the Committee that what this does is question the whole agenda in the passage of this legislation.

I go back to a proposal put to the Labour Cabinet, and that was to float shares in Fonterra. We rejected that—the Labour Cabinet did—and said to Fonterra “Go back and revamp that.” It took the revamped proposal to farmers, and the farmers rejected that, because they too saw that there was an agenda to get Fonterra shares on the stock market. Trading Among Farmers is a new evolution of that, and one might say we are a bit paranoid. The draft Trading Among Farmers legislation, as brought to the House by Minister Carter, had in the first page of the explanatory note that it was to strengthen the capital markets of New Zealand. That is what the explanatory note said; that this bill was about strengthening the capital markets of New Zealand. Well, we accept that there will be a unit fund.

I suggest that the intentions of the Government and of Fonterra may have been more far-reaching than the Primary Production Committee thought wise, more far-reaching than the Opposition thinks wise, and—

RICHARD PROSSER (NZ First) : I want to reassure the Minister in the chair, David Carter, that my earlier comments were not an attack upon his integrity. I found out about the Supplementary Order Paper at around about the same hour this morning as he did, but I was immediately struck by the simple brilliance of it as an elegant solution to possibly ameliorating some of the worst effects of what is still, in essence, a bad bill. We do not support Supplementary Order Paper 81 proposed by the member from the Māori Party Te Ururoa Flavell, for different reasons.

Continuing on with the theme from earlier, the most important feature of the Fonterra cooperative is its size and its strength, and its virtual monopoly position. Because of that virtual monopoly, the size and strength that Fonterra has grown to has been of enormous benefit to the New Zealand dairy industry and to New Zealand as a whole, and we very much want, as a party, to see that continue. New Zealand First would very much like to see Parliament recognise that and to not pass this bill, the Dairy Industry Restructuring Amendment Bill, because of that. All that we can see coming from the Trading Among Farmers scheme as it currently sits and from the milk price setting regulation scheme—as is also proposed in this bill—is the potential demutualisation of Fonterra, and, at the very least, the siphoning-off of a proportion of the dividend stream from Fonterra to overseas interests.

Where we also see a cap on the size of the fund being a benefit is that it will limit the tradability of shares. We see that there is another danger inherent in the trading of unit securities, particularly in the dry shares, because the value of those unit securities will directly affect the value of all other shares in the cooperative, and that will have a direct flow-on effect on the ability of farmers to enter and exit the co-op. Whether they have the right to enter and exit freely or not is not really the issue; it is the cost of entering that will be the issue. If the focus of a unit trading scheme—which it can only be—is to push up the price of the units and to maximise the price of the dividends, then, because Fonterra’s sole source of income is milk, the only place that that additional income can come from is if the farm-gate milk price goes down. If this happens in conjunction with what is ostensibly going to be an independent milk price panel, then the perfect storm will be that dividend prices rise, along with share values, and that the milk price comes down. That will mean that, immediately, a redemption risk will be created where one does not exist at the moment. Share values will rise, some farmers will see those increased values and take the opportunity to realise a gain and quit the cooperative, and new farmers coming in will see that the share price is unattainably high and they will choose to take their milk to alternative processors.

Where we see the danger in that is that the alternative processors are for the most part not cooperative. They are private companies that have no restrictions on foreign shareholding. If the Trading Among Farmers scheme goes ahead as it is proposed—we do not believe, as I reiterated, that it is fully understood by farmers who voted in favour of it—the immediate repercussion will be that the share price increases. Indeed, in order for Trading Among Farmers to attract outside investors in the way that it must in order to meet its 8 percent minimum, the only thing that can happen is that share values rise, because outside investors will offer more for those shares than what they are currently worth. If they were not going to offer more, farmers would not have any incentive to sell them.

I do not intend to keep the Committee very much longer, other than to reiterate that we believe that Supplementary Order Paper 85, as proposed by the Hon Damien O’Connor, is a good one. It will give some indication of the mood of the Parliament to the farmers of New Zealand: that Parliament does have a concern that without a cap on the trading scheme, there is a real risk—a very real risk—that Fonterra will be demutualised, that that dividend stream will flow offshore, and that New Zealand will lose its 100 percent control and ownership of its dairy industry.

We remain opposed to the bill. We still support the Supplementary Order Paper by the Hon Damien O’Connor. In closing, I would just like to add that if Fonterra is allowed to be demutualised by this or any other means, it will be to the great detriment of New Zealand as a whole.

EUGENIE SAGE (Green) : The Green Party continues to oppose this bill, the Dairy Industry Restructuring Amendment Bill, partly because of the speed with which it has been pushed through the Primary Production Committee. The fact that one in three farmers voted against Trading Among Farmers shows the very knotty issues that the committee should have had more time to deal with. The Minister in the chair, the Minister for Primary Industries, was saying that those opposing the bill are assuming that dairy farmers are stupid. The fact, again, that one in three farmers did not vote for Trading Among Farmers shows that there are a lot of intelligent people who have major issues with the bill. We also oppose it because it potentially undermines the successful operation of Fonterra as New Zealand’s most financially successful cooperative through the whole issue of the shareholders being able to sell their shares into this fund and then getting outside investors in.

I would like to correct something that the member for Kaikōura, Colin King, said. He did not correctly represent our position in opposing this bill. He claimed that we wanted to cap the number of dairy farms in New Zealand. That is not true. We want to cap the number of dairy farms in particular catchments—in our lowland streams, lowland lakes—where intensification of land use is having major effects on water quality. Last month David Bruce of the Otago Daily Times reported that Southdown Holdings and Williamson Holdings, the two companies that were behind the very controversial cubicle cow proposals to milk 11,000 cows in the Mackenzie Basin, had folded and gone into voluntary liquidation. Richard Peacocke, the Mount Maunganui businessman who was behind Southdown Holdings, was reported as saying that the shareholders living in Australia made “a commercial decision” that it was too hard, and that they would do something else. Well, that was a very good decision for the spring-fed streams and wetlands of the Mackenzie Basin, and for Lake Benmore.

But the fact that thousands of people had to get involved in the Resource Management Act process, and had to point out the environmental inappropriateness of dairying in the drought-prone Mackenzie Basin, highlights a major defect in this bill—

The CHAIRPERSON (Eric Roy): Order! Order! Can the member just address Part 1 of the bill.

EUGENIE SAGE: Yes; I am. That defect is that it fails to amend the substantive Act to allow Fonterra to be strategic about the expansion of its supplier base, so that it does not have to collect milk from areas such as the Mackenzie, where dairying in a dry, drought-prone region will affect our waterways and biodiversity, and will be very difficult. By allowing non-shareholders to buy units in the Trading Among Farmers fund, their focus will be on maximising the dividend return. The focus, then, of the directors, and their fiduciary duty, is to provide a return to those shareholders. The bill, by not allowing Fonterra to be strategic about where it collects milk, will mean there is potentially more pressure on the company to continue to grow its milk supply regardless of the impact that that has on waterways and water quality. That is another of the reasons that the Green Party opposes the bill. My colleague Steffan Browning will deal with the Supplementary Order Papers, and the concerns we have about those.

MARK MITCHELL (National—Rodney) : I move, That the question be now put.

Hon PHIL GOFF (Labour—Mt Roskill) : I want to come back to the concern that I have that the Minister in the chair, David Carter, is not looking to get a stronger base of support for what is a very important piece of legislation, the Dairy Industry Restructuring Amendment Bill. In the earlier, primary legislation, we managed to get support across the board in the House. The Minister has said in argument that, first of all, he does not want to interfere with Fonterra. But the very fact of this legislation under which Fonterra exists indicates that there is an interest by this Parliament and by this country in what the future of that industry would be. We do not want to see demutualisation. We do not want to see the investor fund get so large that foreign interests will ensure a greater degree of influence over the way in which the company goes, and send money out of this country. But I see no provision in this legislation that provides adequate safeguards against that.

I would like the Minister to clarify what his understanding of Fonterra’s position is on the cap of 23 percent, because, first of all, Minister, you said that Fonterra was opposed to it, and then you said that it would accept it. My understanding, from looking at the email traffic, is that it is comfortable with that—that that is a safeguard. That is what we are asking you to consider. Hopefully, it would not get anywhere near that cap, but having the cap is at least a safeguard in terms of limiting the amount of dividends that would flow from our most successful enterprises out of this country.

I received from the Parliamentary Library, just on Friday, its concern about the trend in the current account deficit. It is now $2.8 billion for the March 2012 quarter. That is the biggest level of current account deficit in over a year. It has increased by $624 million. We know from Treasury projections that our current account deficit is going to get worse, year after year after year. So my question to the Minister is how will having an uncapped level of dividends coming out of this country—because there is no cap on the level of people who can invest in the bonds—help our current account deficit? How does that help grow New Zealand? How does that help us control and own our own future?

We are putting in good faith to you, Minister, a proposal that would provide some assurance. And it is not just this side of the Chamber—and I think all three parties on this side of the Chamber have expressed concern—but, as the Minister will know, it is also many of the farmers. I get all the farmer magazines; I live in a rural area. Week after week I have seen that debate raging in the farming community. It is not good enough to say that 66 percent of farmers have voted in favour. Sir Henry van der Heyden expressed his disappointment that that figure was not what he wanted it to be. We know that it is 66 percent of milkfat solids; it is not 66 percent of individual farmers. So the level of farmer opposition to this legislation could be considerably higher. Whatever it is—and it is at least a third; it may be as high as a half—that concern is expressed passionately, and farmers in this country, and the people of this country, want to know that we have got some assurance over the future ownership, control, and flow of dividends from this company.

I want to know whether this bill and the failure of the Government to accept a cap are because this is the top of a slippery slope. I want the Minister to explain what John Key meant when he said to the former chief executive officer of the New Zealand Exchange that it would be great to have Fonterra as a listed company. That is set out in the NewZealand Farmers Weekly on 22 August of last year. Is it actually the agenda of this Government that it is prepared to see Fonterra publicly listed, it is prepared to see shares sold, and it is prepared to see ownership and control go out of the hands of cooperative farmers and New Zealanders and into the hands of big foreign investors? We are asking as a measure of good faith that the Government support Supplementary Order Paper 85, which would at least put a cap on the amount of the bond fund. That is not asking too much.

The response to accepting that Supplementary Order Paper would be the support of the largest Opposition party for the legislation, and providing some certainty about the future of the industry. It would also be an expression of good faith by the Government that it did not intend to go down that slippery slope of listing Fonterra as a public company and allowing the shares to be sold off. Minister, I am not aware of whether you agree with what the Prime Minister has said. Certainly that is not the proposed agenda that you are putting forward, but the risk is there, and you can settle it.

MICHAEL WOODHOUSE (Senior Whip—National) : I move, That the question be now put.

STEFFAN BROWNING (Green) : I raise a point of order, Mr Chairperson. I need to make a correction for Mana. Mana did support the Māori Party’s amendment, and I incorrectly voted for it.

The CHAIRPERSON (Eric Roy): The vote was not called.

STEFFAN BROWNING: Right, and that was—

The CHAIRPERSON (Eric Roy): No, the vote was not called, so there is nothing to correct. It was carried on the Ayes. OK.

IAN McKELVIE (National—Rangitīkei) : I have found this process fascinating; it is the first time I have had an opportunity since becoming a member of this House to follow a bill through its entire process. The Dairy Industry Restructuring Amendment Bill is a very important piece of legislation. It is a very complex piece of legislation, and it takes a considerable amount of understanding, and some comment has been made in the Committee today on the fact that a number of people in the dairy industry took some considerable time to understand it. I think the dairy industry took a lot of time to understand it, and I think in the end it understood it pretty well.

It is actually an exciting piece of legislation for the dairy industry, if there is such a thing, and it will continue to develop Fonterra as a new-generation cooperative. I think it is very important that we note the fact that it is a new-generation cooperative, and if we do not create these new-generation cooperatives, so to speak, cooperatives always run their course. So it is very important that Fonterra has the opportunity through this legislation to reinvent itself.

I am disappointed with what, I guess, can be described only as the scaremongering of the member for Wellington Central. Wellington Central, I reinforce, is a place where a lot of dairy farmers are residing, obviously!

Colin King: They’ve got their lattes.

IAN McKELVIE: I guess they do need the latte there. His view was that the Government wants to float Fonterra. I find that extremely disappointing, because this is clearly not the aim, at all. Had he attended the Primary Production Committee, he would have understood that his own members and, indeed, the members of the Government on that select committee questioned this topic at length. I think we were all comfortable that we got to the right position with regard to Fonterra and how it might go forward.

Fonterra has a very large parliament. Dairy farmers have spent years discussing the redemption issue. After at least the last 3 years, they have come to the conclusion that it is satisfactory for the industry and satisfactory for the company. This cooperative and its predecessors have been attacked by experts in an effort to gain a piece of the action. I for one am pleased to see the co-op and the Government, via the Dairy Industry Restructuring Amendment Bill and its amendments, making the running here. Through their initiative they have pre-empted what may have been otherwise manipulated by others.

We have heard the Greens on this topic throughout this debate. They do not support this, and that is no surprise. They have yet to get their heads around progress, and now they want to send the industry back to where it was pre-2001. This would be good for the sheep industry. We would get a little of our own back as we witness a swap-back to the sheep industry. My own intelligence tells me that, contrary to the Greens’ allegation, many of my small dairy farming families support the Trading Among Farmers scheme and support the amendments to the Act. The reason they had difficulty with the Act is that if you go back to 2001, it was legislation put through Parliament in order to establish a modern dairy industry. Many of our farmers had difficulty with that, because it changed the structure and the nature of their cooperative. If we do not change the nature of this cooperative, the cooperative will certainly, in my view, be derailed in the future. So it is most important. The other reason that small farmers look forward to the opportunity to support the bill, and I am sure will vote resoundingly for it at the next opportunity, is that it provides an opportunity for intergenerational transfer and for continuance of strong family-owned farming businesses.

One of the factors that I find really important in the course of this is that we are taking the opportunity to change the legislation slightly to ensure that companies taking a piece of the 5 percent of the milk available to other companies have to do it in a structure and a form that is understood. In other words, they cannot set up subsidiary companies to take a share of that milk. This provision will be well supported by the dairy industry. I am sure that it will give great security to the dairy farmers who currently supply Fonterra.

I will be brief. The last thing I want to say on this topic is that this industry was restructured in order to give Fonterra and the dairy industry an opportunity to grow and to diversify. It is designed to create efficiency around the activities of Fonterra. It is designed to create efficiencies around the activities of any other companies participating in the industry.

The CHAIRPERSON (Eric Roy): I just want to acquaint the Committee with the contents of Part 2. We have had some general comment. This is quite a technical section that deals with repeals, and it is coupled with the schedule, which members might also want to look at. I do not intend to allow the debate to be an extension of the debate on Part 1. Having said that, is any member seeking the call?

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : I raise a point of order, Mr Chairperson. Can I just say that the buzzer is pathetic and it is actually a little confusing at times. I am a little deaf, and I did just about miss that.

The CHAIRPERSON (Eric Roy): We will probably now have to wait until the dinner adjournment, when the technicians will come running and fix it. I do hope that the member was not implying that I was pathetic when he talked about the buzzer. Rest assured, if I press the buzzer and the member does not notice, I will let them know.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : Thank you, Mr Chairman. I do not think for a moment that you do not have the ability to push it hard; it is just what comes out at the end that I am worried about. I will refer to Part 2 of the Dairy Industry Restructuring Amendment Bill, which contains transitional provisions that refer back to new section 109A and other provisions of the bill. The provisions are actually quite far-reaching. I will refer to just one particular point, in new section 109D, which relates to the Order in Council and what the trigger points are for the introduction of Trading Among Farmers or, indeed, if the fund was to be dissolved or cease to operate.

One of the requirements put in there is the fund size: $500 million. I would like to take the opportunity to put on record here how that figure was arrived at. Firstly, 2 years ago, when farmers voted on Trading Among Farmers, it was trading among farmers of their own shares, and they supported that in principle because they believed that that was what was going to happen. There were issues of liquidity raised by some of the officials over here, who know competition law, that if all farmers wanted to trade their shares at once, no doubt the price of those would drop. So they came up with a cunning plan, which was to have a unit fund, which was to provide equivalence and fungibility. Fungibility is a word that I had not really made myself familiar with prior to this bill, but I understand it now. The issue of why $500 million was chosen, which equates to about 8 percent of Fonterra’s equity at this point in time, is that it was just a figure plucked out of the sky. It is one that officials estimate will provide enough liquidity to ensure a fair fungibility and, hopefully, some stability in the share price and the unit price. I think they have got it wrong, because the unit owners are just going to want one thing, and that is the price to go up and the dividend streams to flow.

Aside from that, can I go back to the key point of why $500 million was chosen, because some farmers are asking why we do not just go back to the concept of Trading Among Farmers—that is, we trade shares among ourselves as we see fit and need to, and if there is a liquidity issue, then we start off with a smaller fund size. Indeed, the proposition put to me was that farmers themselves could fund a fund; they could buy the units of maybe $100 million or $200 million. In the dairy industry that is not a lot of money. But the insistence of Government officials—the Minister and his officials—was that it should go to a minimum of $500 million, and, indeed, without my amendments, there would be no maximum in legislation. So we have in legislation a minimum fund size of $500 million, regardless of whether it is necessary to have Trading Among Farmers of their shares. So we have forced upon Fonterra, or forced upon the farmers, a fund that is open to outside investors, on the basis that we have to do this to have liquidity. Well, if you buy into that, why not at $200 million? They will always put up the argument in a drought year or in the exception year, etc.

Well, can I put on the record that in one of those exceptional years there is redemption risk still for Fonterra. It has admitted that, and the chairman, Sir Henry van der Heyden, stood up time and time again and said that this was about removing redemption risk once and for all. That was a lie. That was a lie, and he knows that, because it leaves in place redemption risk for Fonterra. Let us be clear about that. It reduces it from a maximum of an estimated $800 million back down to $200 million, but the redemption risk remains in the exceptional event that officials have negotiated and, I guess, calculated for. In that exceptional circumstance, $500 million, $1 billion—who knows—might be required. But the question put to me is why we should be legislating for a minimum fund size when we are not legislating for a maximum.

Well, that supported my Supplementary Order Paper into the House. That is why I brought to this House my Supplementary Order Paper 85 to ensure a maximum fund size, which to some extent counters and balances the argument that officials put up to the Minister for Primary Industries—and he swallowed—that we needed a minimum $500 million unit fund size. These are the transitional provisions in Part 2 and there are many questions flowing on from that that the Fonterra Shareholders’ Council should now start to ask. We will not support this bill, because the Minister and the Government have blocked our ability to have a maximum fund size. Many of the farmers who voted for Trading Among Farmers believed there was going to be one.

There is talk of a vote in November that might reduce the cap from 25 percent to 20 percent. I do not trust the process, quite frankly. I do not trust the process, I do not trust Fonterra, and I do not trust this Government. This Government has embarked upon a process of State-owned enterprise sell-offs and of “strengthening the capital markets of New Zealand”, which was in the explanatory note of this bill. It is determined to get a chunk of Fonterra—as big a chunk as it possibly can—on to the New Zealand Exchange because the chairman of Fonterra, the ex-chief executive of the NZX, and the Prime Minister are good mates. In fact, the chairman of the NZX now has been, and is, involved in investment companies with the chairman of Fonterra.

These things are not widely known by farmers, but they should be. They need to know where this might head. This is our single biggest, most successful, and wholly New Zealand - owned company—Fonterra, a cooperative—and the transitional provisions in Part 2 that we are referring to here may lead to the loss of control and ownership of that, and farmers need to be aware of that. The Fonterra Shareholders’ Council has yet to sign off on Trading Among Farmers. It should be fully aware of what is hidden in this legislation, and ask the question why the Government blocked my Supplementary Order Paper, which would have capped at a reasonable 23 percent of the share value of Fonterra the fund that will trade units that will be able to be purchased by outside investors, because I do not know that it fully understands that.

It may be because the Prime Minister said that he thinks that Fonterra on the stock exchange would be a great idea. It may be that the original intent, as stated in the bill, to strengthen the capital markets of this country, is the objective of the Minister and his Government, not indeed to grow Fonterra, because actually this does not in itself provide Fonterra with any more capital. It does not, in itself, provide any more incentives to innovate or create more value-added products, and the chair of the Primary Production Committee knows that. What this does is open the door to outside investment in the naive belief that analysts of the New Zealand Exchange will provide the discipline to drive better management of Fonterra. Well, if you have a look around the country at the failed companies and at those that have been sold offshore or that are failing at this moment, and have a look at what analysts have said over the last 10 years of NZX companies, I think you would fire the whole lot of them.

Part 2 of this bill here contains transitional provisions. It enforces and relates to Orders in Council and the ability for the fund to be wound up if these conditions are not met. I think that if we did not reach the $500 million fund, it would be a great outcome. It would actually mean that the farmers of Fonterra had the opportunity to go back and work on a different way of addressing redemption risk, because they are not eliminating it through the passage of this legislation and the setting up of Trading Among Farmers; they are reducing it. There are other options to reduce redemption risk, which we accept are there. The options are there and the redemption risk is there. The simple fact is there has not been enough debate, and robust debate, on those options.

The previous speaker, Mr McKelvie—

The CHAIRPERSON (Eric Roy): Before the member Shane Ardern starts, I say that I did give a caution that this is largely technical. It is about transition matters, and the member who was just speaking did get well outside of that. If members do not want to talk on Part 2, you are inviting the Chair to take an early closure motion. That is how it works.

SHANE ARDERN (National—Taranaki - King Country) : Mr Chairman, I intend to speak entirely on Part 2, but can I reference, first of all, the comments made by the previous speaker, the Hon Damien O’Connor—the scaremongering, I guess you could say, that is going on around the potential loss of ownership of Fonterra. As I said in Part 1, it is in dairy farmers’ DNA to maintain 100 percent ownership of this industry, and can I just say it is not just a philosophical position—and it is entirely enshrined in Part 2, under “Miscellaneous”—it is a commercially driven position. It is a commercially driven position that is absolutely in the best interests of “New Zealand Inc.”, so let us just talk about how that will be achieved, particularly in regard to the new sections 109A and 109B in Part 2. That is the size and the protection and the ability of the fund, if you like, the fungibility—a new word that we learnt in the Primary Production Committee that most of us had not heard of until we started down this track—in regard to maintaining Trading Among Farmers and the dividend fund.

Can I just say that if the worst fears that were expressed by the previous speaker were to be realised, then the shareholders themselves, through the process of election of directors and chairman of the company, would address that. There is a track record of that over many, many years in this industry—in fact, over 100 years. It is lost, I think, in this debate that in Taranaki alone there were over 100 processing sites and now there is one for the whole of the lower North Island. So decisions will be made—decisions that protect the best interests of the industry.

So let us look at what is in Part 2: transitional provisions for the application under section 73 or 74 of the principal Act. Those provisions and many others that are related and tied in to section 109—well, I am reading it from the bill here, Mr Chairman; I am not sure whether you have got the same one, but I am certainly reading directly from the bill that is tabled in the House today—are themselves a form of protection against some of the assertions that have been made by the Opposition in the previous contribution.

Can we look at the transitional provisions for notice of withdrawal under section 97 of the principal Act, which are also covered in Part 2 before we end up in the schedules, and that is also a built-in protection for some of the issues that have been debated by the previous speaker. Section 77, of course, and new section 77A, is the area where the share price of Fonterra will be set by the Government if Trading Among Farmers does not succeed. That in itself was of great concern to the Primary Production Committee when it was first brought to the select committee, and an enormous amount of work and advice not only from fund managers and valuers but also advisers to the committee, and one of those was independent, thrashed that round and round and round. When I look now at where we have finished up in terms of support in the House, I wonder why, as chair, I let it go round as often as I did, with the, I guess, naive hope at that stage being that we might reach a compromise position where we could achieve bipartisan support for this legislation.

So new section 77A—section 77 is mentioned in Part 2 of the bill—was amended in the select committee.

With those words, I look forward to the passage of this bill through the House. It has been a contentious debate. It has been a thoroughly considered position that the select committee ended up in, and there was sufficient time for all of those who wished to ask questions, and all of those who sought further advice, to have that advice delivered and furnished. I think we finished up in a position where we have a fair compromise.

The CHAIRPERSON (Eric Roy): I look forward to the Hon Shane Jones, who knows that the debate on clauses 1 and 2 is the time for the summary of the debate, and this is about the miscellaneous and transitional provisions.

Hon SHANE JONES (Labour) : From the far north to the deep south, I greet you, sir. Having returned from Waitangi and other such far-flung places and never having enjoyed the opportunity during the Committee stage to visit a modest level of oratory on the Committee, I will take on board what you had to say.

I would like to start off, however, by saying that in order for that Shane Ardern’s words to come to pass, there has to be a bit of compromise on both sides. But I want to direct our attention back and follow on from Damien O’Connor, taking on board the admonition of the Chair. It is not unreasonable in this stage for us to challenge the efficacy or the adequacy not so much of the transitional provisions etc. but of the safeguards for what is proposed—beyond all the parliamentary brouhaha, because that will have come and gone. This will be well down the track, this will be back into the innards of Fonterra, this will be back not even necessarily at the table of the Minister for Primary Industries; it will be with the stable of bureaucratic advisers. During the course of the select committee process they had a task that they needed to acquit themselves of, and, in fairness, what they are paid to do they, by and large, delivered for their Minister. But the point remains at a deeper level that it is not unreasonable for members on this side of the Chamber to continue to raise the concerns and to question whether, for example, if the trading scheme does not come to pass, with the alternative process we can be confident that the key stakeholders in the farming community will be listened to, or will it be that those who enjoy the corporate leadership of Fonterra will be the ones whose voices are amplified—whose voices carry the day?

As parliamentarians during the select committee process, time and time we were warned that once the large rhetorical battle is over, it then moves into almost a regulatory phase, and a subsidiary level of legislation, and we have got every right to put it on the record here and have it entered into the Journals of the House of Representatives that we fought this until the final point. Why? Because it is not unreasonable for us to remind you, it is not unreasonable for us to remind ourselves, that once this fund is set up without a legislative cap or without a legislative safeguard, we do depend on the constitutional processes within Fonterra. At one level, as has been said, it is its business. But Fonterra itself is a creation of this House, so that makes it the business of legislators, and for those reasons, at every opportunity, this side of the Chamber will continue to remind our friends on the Primary Production Committee, and indeed key stakeholders within the farming community, because once it leaves here another dynamic takes over.

I do not want to inquire as to whether it is dumb capital that will fill the $500 million order book, or whether a smaller amount will actually step up to the plate. But we need to be absolutely sure that these transitional provisions, the regulatory-making power, actually allows for a threshold of safety and reassurance, because as day follows night, if it does not work out, this is where they will come back to. First, to the advisers after the litigation, which will be driven—rather humorously, I might observe—by both sides that comprise my DNA, the Dalmatian and the Māori, rest assured they will definitely litigate going forward and we will see an example of what Telecom put us through.

Hon Damien O’Connor: Too much money.

Hon SHANE JONES: Yes, well, I am sure the Dalmatians have got too much money; for fear of losing what slender Māori votes I still attract, I will not say that about my own people, Mr O’Connor. But I would remind the Minister in the chair, the Minister for Primary Industries, that, of course, on this side of the Chamber we are champions for the industry, but in the absence of compromise, Minister, you know as well as I do what they told us recently in that great talkfest to do with cooperatives. The great cooperatives of Manitoba and that part of Canada have all disappeared as a consequence of people being asleep at the wheel and allowing privatisation to sneak in and ruin the core foundations of their cooperatives. We remind you that you must not, under your watch, allow such a thing to—

TIM MACINDOE (National—Hamilton West) : I move, That the question be now put.

• Motion agreed to.
• The question was put that the amendment set out on Supplementary Order Paper 72 in the name of the Hon David Carter to add new clause 20 be agreed to.

• A party vote was called for on the question that the amendment be agreed to.

STEFFAN BROWNING (Green) : I raise a point of order, Mr Chairperson.

The CHAIRPERSON (Eric Roy): I think I understand. The member has a point of order relating to a previous vote. We will deal with that immediately after this vote.

STEFFAN BROWNING (Green) : I raise a point of order, Mr Chairperson. I seek leave to amend the vote for Mana for the Minister’s Supplementary Order Paper on Part 1. Mana voted 1 opposed and I inadvertently voted in favour for Mana.

The CHAIRPERSON (Eric Roy): So that is to the Minister’s amendments that were set out on Supplementary Order Papers 72, 73, and 82. The member is seeking leave to change from Mana’s No vote to an Aye vote.

STEFFAN BROWNING: The other way round.

The CHAIRPERSON (Eric Roy): The other way round. Leave is sought for that purpose. Is there anyone opposed to that course of action? There appears not. Leave is granted. The record will be amended. It is corrected by leave.

• Schedule agreed to.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : This is clauses 1 to 3, “Title”, “Commencement”, and, of course, “Principal Act”. We are familiar with the principal Act; it was one that we engineered and negotiated through in 2001, and we were quite proud of the fact that as a Labour Government we were once again passing a significant piece of legislation for the dairy industry. In fact, if you go back to the 1930s under Labour, the 1950s under Labour, and, of course, the 1980s, where we removed subsidies for all sectors, Labour has played a big part in dairy industry legislation. And, of course, in 2001 the Dairy Industry Restructuring Act, the principal Act, was passed to set the company up.

We cannot support this legislation, the Dairy Industry Restructuring Amendment Bill, and it is with sadness, I guess, that we find ourselves in that situation. If the Minister for Primary Industries had seen his way clear and the Government had perhaps backed what it says rather than covering its real agenda, then it would have supported the Supplementary Order Paper to limit the fund size. But the Minister and his colleagues clearly have other agendas.

The title of this legislation will be the Dairy Industry Restructuring Amendment Act 2012. I am tempted to put forward an amendment that would change the title to the “Dairy Industry Destruction Act”, because I have no doubt that this bill will lead to a build-up of internal tension within Fonterra as the focus of the board and the focus of management shifts from one of maximising the return to dairy farming shareholders through milk price and through dividend streams—less focus on dividend—and regardless of that division the farmers ended up with all of that return. That will change.

The commencement date, which is laid out here, says “comes into force on the date specified in an Order in Council”. Perhaps it will not come in. Perhaps the fund size will not reach $500 million, and within the 2-year provisional period it is possible, if dairy farmers are concerned enough and express their concerns through the Fonterra Shareholders’ Council, that this may not go ahead. Fonterra has been talking to another group, and it has been talking out of both sides of its mouth, I would have to say. On the one hand it has been talking to the farmers, reassuring them about milk price, and, on the other hand, it has been talking to potential investors, assuring them about the dividend streams. Actually, if one of those two groups spoke to the other they would find that the messages are somewhat conflicted at times. Mr Chairman, this relates to the commencement date in the bill here; I do not want to stray in any way from these three clauses. The commencement date does depend on the Order in Council or the conditions of Trading Among Farmers being met, and, as I say, they may not be met, and this “Dairy Industry Destructuring Act” may not come into being.

Mark my words: this legislation will see the destruction of the cooperative of Fonterra, and I say that with sadness. The Minister in the chair, the Minister for Primary Industries, laughs. This is the same Minister, of course, who is insisting that local councils sell down their assets, the same Cabinet Minister who is insisting that we sell 49 percent of our State-owned enterprises on to the stock market. It is little wonder, then, that he makes a joke of what will be building internal tension within Fonterra that will lead, regardless of any constitutional limit, to changes that, over time, will see the loss of our biggest company.

Shane Ardern, the chairman of the Primary Production Committee, who has done a very good job—as good as he possibly could inside a National Government—to bring about a fair piece of legislation, knows full well too that without the legislative cap the fund size will blow out, and the influence of those investors will overtake the interests of the farmers. In fact, if you look around the world, farmers are either peasants or highly protected. In this country they are in a unique situation, and the structure that has been Fonterra has enabled them to grow and succeed like no other company in this country.

I do fear that the title of this bill is misleading, that the commencement date will be a sad day when we see this opening of Fonterra to outside investors, and for the principal Act, which we were quite proud of—and it was not perfect. It was not perfect. The fair-value share has created tension that needed to be addressed, and there were ways of doing that. I acknowledge that. But the way that we are talking about doing it here, the introduction of Trading Among Farmers and the opening up to the market of the share value of a cooperative, is quite unique internationally—quite unique. It is a model that has not been tried anywhere else. In fact, putting the share value of a cooperative out into an open market for investors is not done anywhere else. This will be unique, because the fungibility—that funny word that we have all had to learn about—is designed to ensure that whatever unit investors decide is a fair price will be the price for the shares of Fonterra. And if, as some of the submitters say, that share price rises on the back of increasing dividends, then there is a potential for us to see the wash-out of many Fonterra farmers and the undermining of their milk supply base. And the member over there who chairs the select committee knows full well what that means for a company.

There are many, many dangers that the open-market trading of units has created for Fonterra the cooperative, and the sooner that is acknowledged and understood, the sooner the farmers will realise what they are getting into. They have a chance. The Fonterra Shareholders’ Council has yet to endorse it. It could stop the commencement date of this legislation—that is, clause 2—by not endorsing Trading Among Farmers. It is up to the shareholders’ council now. The Minister laughs, but actually there is a legal requirement for the Fonterra Shareholders’ Council to sign off on this. It has not done so yet. It may be, if it is listening and thinking, that it might start to realise what it is actually signing off on.

We do not support the bill. We do not support these three clauses, because we think that they are actually misleading the farmers as to what, indeed, they are getting themselves into.

COLIN KING (National—Kaikōura) : I have just got to address one or two fundamental issues that have been raised on the Dairy Industry Restructuring Amendment Bill. This part of the Committee of the whole House gives us a good opportunity. We need to remember as a Parliament, as the Committee of the whole House, that 95 percent of a farmer’s income is the farm-gate milk price. That then leaves that economic return from the fair value share, of 5 percent. What Fonterra is talking about is a pool of 12 percent of that 5 percent. So we need to keep things in perspective.

I thought that one of the most compelling conversations that we had while we were listening to submissions came from the chief executive officer of Fonterra. He was talking about the interest they were forced to pay on the spot market to cover various activities because of the conservative business setting they had to run, because of the redemption risk that they were exposed to. They at times had to pay 14 percent interest, which is well and truly above what the market rate was, or 11 percent interest. In actual fact the market rate was 4.5. I just put it to the Opposition on the other side of the Chamber that inactivity in the present climate will actually deny Fonterra realising its full potential to New Zealand.

We hear the Opposition members talking about the cooperative model. I put it to the Opposition that from day one of the dairy industry it was a no-brainer but to cooperate, because the product itself would not last any more than a few hours. So cooperation is not the invention of this House or of any particular party; it was the invention of those people who entered into that sector, and those people today, on average, would have investments, or exposure to the capital markets themselves in which they have borrowed, of $3 million and beyond. There are banks that have taken risks with these people, and consider them a good risk.

Here we are, being hung up on a piece of legislation that is very good, well-thought-through, well-balanced, enabling legislation. It is legislation that has been brought to Parliament by virtue of the insistence of Fonterra itself. It was voted on originally in 2010, and got a vast majority. It had another vote in June, and again it received 66 percent support. I believe that the Opposition, when you look at the minority reports, took a very inflexible position early on, and that has been manifest in the very debates that we have heard during the Committee stage. Fonterra itself, within its constitution, will have a vote at the annual general meeting. It must trigger 75 percent agreement, as to the size of this pool. It is very descriptive. They have put their cards on the table, and the farmers, I believe, at that annual general meeting will support that motion.

So what is left to say, but that we wish this bill all the very best. I just want to say how proud I was to be on the Primary Production Committee, which looked towards the future of this wonderful cooperative. I am 100 percent sure that 100 percent farmer ownership is not the issue, because when you look at the structure of it, that will happen only if the pool of the fund is allowed to become too large, and, effectively, that pool is going to be limited. I would encourage members, rather than being like Damien O’Connor, the Labour member who speaks what Labour really thinks about farmers, and who is in opposition to it, to broaden out and get some other members on the select committee who can be futuristic and contribute—

STEFFAN BROWNING (Green) : The Green Party has, as we say, a major concern about this bill, the Dairy Industry Restructuring Amendment Bill. What we have been led to believe, through very good advice, is that there is an actual risk of technical insolvency because of the way that this bill has been drafted. We have issues around the fair value share. We sought, as a select committee, independent and expert advice and then it appears that that was principally ignored. The Primary Production Committee worked very, very hard on all parts of this bill to try to make some serious sense of it and to see how we could look after both “New Zealand Inc.” and the individual farmer families that were going to be affected by it.

We get stuff from some of the Government members of Parliament, and from the Minister for Primary Industries at times as well, suggesting that we are opposed to farmers in New Zealand, that we are opposed to the growth of a particular sector in New Zealand. We are far, far from that. We want more people on the land, and these provisions in here look to be reducing that.

We heard some statistics before showing how many fewer dairy farmers there are. Fewer dairy cows—absolutely not. It is the intensification and farming management that has gone to—basically, I was going to say to hell in a handcart—not where we are going with the growth in the number of farmers. 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. But unfortunately the co-op has gone for a walk, and these provisions show that. They are not about supporting individual farming families. They are about supporting the big, big companies that clearly Cabinet and others seem to be supporting, over and above the traditional supporters of even the National Party.

It was noted as well that these provisions would help contestability and theoretical open competition. Well, that is a philosophical, neo-liberal approach. It is not necessarily about helping New Zealand farmers. That went right through to what was going to be part of the milk price and the need to support independent processes. We note that in fact when the Dairy Industry Restructuring Act first started, when Fonterra first got under way, two smaller co-ops were basically dealing with 4 percent of the raw milk processed in New Zealand. That is now 11 percent. This bill is not needed to help independent processors, at all. And why should it be? We need to be looking after the co-op, the single-desk model that has worked so well for certain sectors of the primary industry in New Zealand.

The Greens obviously will continue to oppose this bill. We look forward to, hopefully, a change of Government in 2014, when we can get in and address that and stop this sell-out of primary industry and family farmers by a party that we would have expected to support them to the nth degree.

Hon SHANE JONES (Labour) : I stand to support my colleague in focusing our attention on the title of this bill, the Dairy Industry Restructuring Amendment Bill. Prior to your arrival, Mr Chairperson, I was censured—I would not say unfairly, but disproportionately—for fear of wandering beyond what are the proper boundaries of a contribution at this point in the magisterial process known as the legislative process, etc. But when we look at the word “restructuring” there are three things I want to say, in all seriousness.

I do not think that we were ignorant of the fact that there are challenges in relation to access to capital, managing capital, and, in the year of the perfect storm, a lot of what we were told. We had to trust in the integrity of what the officials reassured us was accurate, and quite frankly, what a lot of the senior members of the industry were telling us.

We then delved into whether or not there were other alternatives to overcome the capital challenge that one no less august than Sir Henry van der Heyden told us of, and may he do well for the iwi of Tainui. He has certainly done well for himself, but that is another matter. So we are not ignorant of the fact. I say to the Minister for Primary Industries that we are not ignorant, but we remain and will always remain either suspicious of, or deeply troubled by, the tension that exists between, in this restructuring, producer capital and investor capital.

Even at this late stage of the debate it is a worthwhile and a legitimate concern to continue airing. The Minister for Primary Industries has all the power and the authority, and he represents a party that enjoys enough support in the House, I would think, to usher this bill through. But without a doubt we are going to see as we go forward, in the event that enough investors actually jump into what potentially could be dumb capital—I doubt it, though. I think canny long-term investors will see this fund as the first step or an initial brick in the wall. That is the first rather significant area of concern that we have amplified at all key stages in this debate.

The second concern is whether we have actually, through this restructuring, strengthened the dairy industry or served the interests of the executive within the institution empowered to drive performance for the industry. Unfortunately, only time will tell. I accept that the farmers will vote, because I sure as hang know they do not vote in the north for us. But that is another matter. They will vote, and they will fail or flourish, depending on the outcome of that vote and the stewardship that they themselves or the executives bring to bear on the question as to when the new derivatives trust—which is broad nomenclature—which is what I have been using to describe it, and also Trading Among Farmers strike a price as to what is the value of the share.

At one level it seems almost contradictory that we extol the virtues of a cooperative but we borrow the language and we garb the essentials of the cooperative in the context of Fonterra with a language more akin to a debate about a Wall Street company. But that is the fusion of having a powerful international trader and marketer such as Fonterra and also wanting to uphold. That is the second thing.

We accept, I accept, that at the end of the day it is the farmers. But, as I have said during this debate about restructuring, Fonterra came into existence by dint of what we did in this House, so it is not unreasonable for us as legislators to either challenge the farmers or challenge ourselves, and not accept uncritically the notion that “You can’t talk about our business because it is farmers’ business.”

Farmers’ business in so far as it requires legislative amendments is legislators’ business. Any farmer who thinks that that is not accurate or who seeks to deprecate us as legislators playing our rightful role I hope I meet in a future guise, when I am a Minister with some level of influence over their affairs. The third thing, at the end of the day, is the price of milk and whether or not the minnows—Miraka, Open Country Dairy, and others—will be able to afford to buy the milk from Fonterra. The Minister has had an opportunity to allow Te Ururoa Flavell’s amendment, but he swiped it aside, just as he swiped aside my senior colleague Damien O’Connor.