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Dairy Industry Restructuring Amendment Bill — First Reading

[Sitting date: 03 April 2012. Volume:679;Page:1564. Text is incorporated into the Bound Volume.]

Dairy Industry Restructuring Amendment Bill

First Reading

Hon DAVID CARTER (Minister for Primary Industries) : I move, That the Dairy Industry Restructuring Amendment Bill be now read a first time. At the appropriate time I intend to move that the Dairy Industry Restructuring Amendment Bill be considered by the Primary Production Committee, and that that committee present its final report on or before 1 June 2012.

The Dairy Industry Restructuring Act, or DIRA, was enacted in 2001, and was the legislation that allowed for the formation of Fonterra. Ten years on, this amendment bill will ensure that the Act remains a durable platform for the continuing growth of an efficient and innovative dairy sector that is maximising its potential for the New Zealand economy.

Before I get into the detail of what the bill contains, it is important to reflect—[Interruption]

The ASSISTANT SPEAKER (H V Ross Robertson): Order! Can we have some courtesy, please.

Hon DAVID CARTER: —on why Fonterra was created, and why the Dairy Industry Restructuring Act was put in place. Parliament enabled Fonterra’s creation because it saw advantages in terms of efficiency of scale and scope. It was anticipated that Fonterra would be able to compete more successfully in world markets, and that investment and innovation in the dairy industry would be stimulated. However, providing an exemption to the Commerce Act to allow Fonterra to form had to come with conditions. Due to Fonterra’s dominance in the New Zealand dairy markets, the Dairy Industry Restructuring Act legislation was the trade-off for the creation of Fonterra. It was essential that farmer suppliers could freely enter and exit Fonterra, that independent processors could compete for farm-gate milk, and that Fonterra continued to have the right incentives to remain efficient and innovative. Freedom of entry to, and exit from, Fonterra is largely what the Dairy Industry Restructuring Act is all about.

With almost 90 percent market share, Fonterra is still the dominant player in the New Zealand dairy industry. Therefore, the conditions that applied on Fonterra’s creation are still applicable today. However, there have been a number of developments since Fonterra’s inception, and these mean that amendments are required so that the Act remains fit for purpose. Because of Fonterra’s dominance, its farm-gate milk price is effectively the default price that all dairy processors in New Zealand must pay in order to attract supply from dairy farmers. The Dairy Industry Restructuring Act does not directly intervene in Fonterra’s milk price - setting processes; instead, it promotes contestability through its freedom of farmer entry and exit requirements. The bill legislates for greater transparency of the way Fonterra currently sets its farm-gate milk price through its milk price manual, to ensure that the farm-gate milk price is consistent with outcomes in a contestable market. A contestable market should, in practice, result in a farm-gate milk price consistent with that which would emerge in a workably competitive market.

The Ministry of Agriculture and Forestry, together with the Ministry of Economic Development and Treasury, undertook a review of how Fonterra set the price it paid its farmers for milk at the farm gate. The review found that although the approach appears consistent with how the milk price would be set in a workably competitive market, Fonterra could have the incentive and the ability to pay a price that could distort the market.

Two rounds of public consultation were undertaken on potential amendments to strengthen confidence in Fonterra’s farm-gate milk price. The consultations confirmed the need for greater transparency in the milk price - setting process. To achieve this, the bill includes the following measures: first, embedding Fonterra’s current milk price governance arrangements into legislation; second, requiring Fonterra to publicly disclose information in relation to its milk price setting; and, third, introducing a milk price monitoring regime to be undertaken by the Commerce Commission.

The bill also includes a number of new provisions to allow for Fonterra’s proposed Trading Among Farmers regime, or TAF, as it has become known. Under Trading Among Farmers, farmers wanting to purchase or sell Fonterra’s shares would trade in a market rather than transacting directly with Fonterra, as is currently the case. In addition, an external fund would be established and the farmers would be able to sell a portion of their shares to the fund in exchange for cash. Internal investors would be able to purchase the beneficial rights—in other words, the dividend—and any changes in value to shares that the farmers sold into the fund.

Fonterra will remain 100 percent farmer-supplier - owned, as voting will stay with Fonterra farmer-suppliers. Trading Among Farmers also provides the opportunity for Fonterra to raise additional capital to pursue growth opportunities in New Zealand and in overseas markets. The bill contains provisions that will enable Fonterra to proceed with Trading Among Farmers should it choose to do so. These provisions are aimed at ensuring that Trading Among Farmers will be an effective substitute for the existing issue and redemption obligations, by delivering deep, liquid, transparent, and well-informed markets for Fonterra’s shares.

It is important to note that the ultimate decision regarding Trading Among Farmers sits with Fonterra and not with the Government. The provisions in the bill supporting the Trading Among Farmers regime will expire if the Trading Among Farmers preconditions have not been met by 31 December 2013. However, if Trading Among Farmers is not launched before the end of 2013, or if it is launched and subsequently wound up, the bill introduces a new requirement relating to Fonterra’s administratively set share price. This would ensure that the price of a Fonterra share is set at a fair market value. The share issue and redemption requirements would then be retained in the absence of Trading Among Farmers.

This is critical legislation that allows Fonterra and other dairy companies to make their full contribution to New Zealand’s export economy. I commend the bill to the House.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : I am not sure that it is a pleasure, but it is certainly an honour to speak on the Dairy Industry Restructuring Amendment Bill in the House today, in respect of what is the biggest and most successful industry in this country. If it was not succeeding now, this economy would be in dire circumstances, and I think the Minister for Primary Industries has acknowledged that.

Labour has a proud history in the dairy industry, going back to the 1930s, the 1950s, through to the 1980s with the removal of subsidies, and in 2001 when Labour in Government set up Fonterra. We have, and are proud of, that history. But we cannot support this bill today. We have supported the legislation on the basis of it being non-partisan and of there being general consensus. Indeed, I think in the 1950s Labour developed a bill and it was passed by a National Government. We had consensus when we set up Fonterra. However, we cannot support the National Government at this stage, because we believe that this legislation is premature.

There is too much misinformation, a lack of information, and, indeed, still great debate within the dairy industry on what might come of this legislation. In fact, we heard last week from the Fonterra Shareholders’ Council a position that it could not support this legislation in its current form. That was a brave move for it, but it made that statement because there are too many unknowns relating to this bill.

The Minister has outlined what the bill does. There are basically three components to it. The first is a milk price - setting arrangement. That is currently in legislation and in regulation, and what this bill seeks to do is legislate it going forward to ensure better transparency. The issue that dairy farmers have raised in relation to this part of the bill is that when the milk price - setting methodology was reviewed, there were concerns from consumers, and there had been constant bleating from companies getting milk from Fonterra that they were paying too much. Well, in fact, the review identified the reality that it would be “a reasonable proxy for how the milk price would be set in a workably competitive market.”—that is, there was no major problem with it. What this bill says is that if Fonterra did happen to use its dominant position, if it did happen to try to limit the amount of milk going to competitors, or if it did happen to try to retain its farmer shareholders, then it could possibly manipulate the milk price. Well, Labour thinks that this might be perhaps an overregulation of what has proved to be a reasonably efficient way of establishing the raw milk price, milk for competitors, and a fair indication for farmers as to how much their milk is worth.

The second component of this legislation is, as the Minister said, the trading of shares among farmers. This the most significant part of the legislation. There has been huge distraction, constructed by the National Government and constructed by the board of Fonterra itself, to distract farmer shareholders from getting down to the nitty-gritty of Trading Among Farmers—deep inside the details, which have yet to be released in many cases. However, there is a fear, and a growing fear, among farmers that this might be opening up the cooperative to outside investment, outside ownership, and, ultimately, outside control.

The Minister shakes his head. I know that he quoted in his speech that this bill was about maximising returns to the New Zealand economy. I scratched my head and thought: “Where have we heard this before?”. I go back to a previous National Government: “The Government’s goals are twofold: firstly, to see the industry performing to its maximum potential using resources as efficiently as possible, and secondly, to maximise the wealth and welfare of New Zealanders.” That is an honourable statement by a National Minister, Mr John Luxton, when he was deregulating the pipfruit industry. Ask any apple grower what the results are of that well-intended and noble gesture. Well, the Minister makes similar statements now regarding the dairy industry.

In fact, the Ministry of Agriculture and Forestry’s documents imply that a cooperative is an inefficient and ineffective allocator of capital, and that it is an inefficient and ineffective manager of one of our main industries. Unfortunately, I have to say in this House that I believe that the underlying advice to many Ministers over a number of years from the Ministry of Agriculture and Forestry—the Ministry for Primary Industries, as it is soon to be—is that it believes opening up all the sectors to markets will deliver the most efficient allocation of capital. That is basically flawed, and it has been proven time and time again. That Minister’s officials have provided the same faulty advice on this piece of legislation. A number of people, those who have had the time to go through and read the 251 pages of consultation, can clearly identify the faults in that advice.

We are concerned that Trading Among Farmers may open up opportunities for offshore investment. We are asking whether the farmer shareholders, who will be able to trade shares, will, firstly, be New Zealand residents. In fact, what is the definition of “farmer”? And we will be seeking through the select committee process, if this bill passes—if Mr Banks or Mr Dunne wants to support it—assurances that the farmers who will have the shares and be able to trade the shares will be New Zealanders, be New Zealand residents, and, in fact, be the very people who should be controlling and owning our most successful company.

The third part of the bill is the share valuation process. This is very unfortunate. Wayne McNee, the Director-General of the Ministry of Agriculture and Forestry, said to the shareholders’ council of Fonterra that if it did not support Trading Among Farmers, he would regulate Fonterra’s milk price and regulate its share price. That is the threat that has driven farmers to consider the need for Trading Among Farmers, as much as the redemption risk, be whatever that may. That threat—that threat—made at the shareholders’ council is very unfortunate for a senior official from a key Government department. Those people feel that if they do not support Trading Among Farmers, they will have to face the third provision, which I am referring to now, and that is share valuation.

The Minister, I have to say, almost quite dishonestly in his speech said that it would deliver fair value. No, this insists on full valuation of a Fonterra share.

Hon David Carter: No.

Hon DAMIEN O’CONNOR: Yes, it does. Yes, it does, Minister, and you should go and read your own officials’ reports. It insists on a full valuation of a Fonterra share. This is some of the concern, given that the board of Fonterra devalued its shares by 30 percent less than 2 years ago on the basis of limiting the tradability of the shares. If Trading Among Farmers does not go through, and if shares cannot be traded at all, why would the National Government insist on a process that delivers full value share? The point is that this is a cooperative. Most cooperatives are started on the basis of a nominal value share. This goes right to the heart of the cooperative and what we believe may be inside pressure to demutualise it.

Labour is concerned, and that is why we cannot support the bill, because at this very time the National Government is determined to float shares of our State-owned enterprises. The Prime Minister himself has said that he would prefer to have Fonterra as a listed company. Both of those things are raising alarm bells in the minds of every dairy farmer up and down this country, with a few exceptions. Some may see there being an opportunity—

Hon Trevor Mallard: The ones who live offshore.

Hon DAMIEN O’CONNOR: Well, there are the ones who live offshore. Most of these dairy farmers have been National Party supporters, but I can tell this Government now that those people are concerned that the National Government is pushing ahead with a bill that has too many unanswered questions. That is why Labour cannot support the bill in the House at this time.

Hon JOHN BANKS (Minister for Regulatory Reform) : For the record, I declare an interest in these matters considered by the bill, on behalf of my family trust, which holds shares in New Image Group Ltd, which is involved in dairy-based product manufacture and onselling.

I rise on behalf of the ACT Party to support the first reading of the Dairy Industry Restructuring Amendment Bill. Even if there were numerous provisions in this bill that the ACT Party did not like, the ACT Party believes in the best interests of the tradable sector, the farming community, and dairy farmers. Of course we would support the referral of the bill to the select committee, so that we could hear from the farmers as to what the farmers—dairy farmers—up and down the country would think about the provisions in this bill, which dictate much of the farmers’ financial viability and future. Labour members stand up in this Parliament and say they support dairy farmers, but they are not going to support this bill, because they do not like what is in it. Well, why not support the bill in its first reading, so it can go to a select committee and you can hear from dairy farmers: real people, men and women, salt of the earth, down the country road, on the stone roads, up past the driveway, through the gates, past the dogs, into the woolshed, and beyond to the house? Those people work the farms and milk the cows.

Hon Trevor Mallard: These are dairy farmers, not sheep farmers.

Hon JOHN BANKS: They milk the cows. The cows are being milked every day, so that the farmers can pay the bills of this country.

This bill seeks to amend the Dairy Industry Restructuring Act 2001. The Act was supported by the Labour Party. I was in Parliament when the Labour Party supported that bill back in 1999. The Labour Party then believed in supporting farmers—men and women on the other side of the House supported dairy farmers. What has changed in the last—how many years has it been since I have been here? Is it 30, 40—

Shane Ardern: A long time.

Hon JOHN BANKS: A long time. What has changed in those times? What has changed is that the Labour Party in Opposition belongs in Opposition as far as dairy farmers are concerned. That is what has changed. I do not know of one dairy farmer who would support a parliamentary Labour Party member of Parliament at the ballot box—not one.

ACT supported the bill because it was an improvement on the existing arrangements at the time in 1999. ACT wants farmers to control their own destiny. Let us get that up the mast. ACT saw the bill as enabling and empowering farmers to make their own decisions and shape their own destiny. We want farmers to be able to shape their own destiny. We also supported some reform to the Dairy Industry Restructuring Act last time.

This amendment bill now seeks to further empower farmers to make their own decisions. Fonterra is their business. The first feature of the bill is to permit share trading between the shareholders of Fonterra. We understand that 80 percent of farmers support that. To the 20 percent of farmers who do not support that, we do not say—like the Labour Party Opposition—that we are not going to support this bill. We want those 20 percent of farmers to come along to the Primary Production Committee and say why they do not support it. Is that not a better proposition in a constructive parliamentary democracy?

The bill will also allow others to invest in Fonterra by taking the beneficial interest in the shares, while the farmers retain the legal interest—the legal interest. This complex set of arrangements is intended to make Fonterra more like any other company and less like a co-op. If that is the choice of the shareholders—if that is the choice of the shareholders—it is their business.

The second feature of the bill requires statutory transparency—we love that—over the method used by Fonterra to set the base milk price. Statutory transparency. It does so because of the dominant role that Fonterra plays in setting the price of milk for all processors—the dominant role in this economy that Fonterra has. So we want transparency—statutory transparency. We want to make sure that everything is being done right, and the right thing is being done.

Owners will also need to know how the milk price is determined. Farmers want to know that. The bill creates a statutory panel to supervise how Fonterra calculates the base milk price, does it not, Minister?

Hon David Carter: Yes, it does.

Hon JOHN BANKS: The base milk price formula is published in a manual that is publicly available—a transparent document. Is it not, Minister?

Hon David Carter: It is.

Hon JOHN BANKS: The Commerce Commission can then review that manual and issue a report that we can all see—transparency. Is that not right, Minister?

Hon David Carter: That’s absolutely right.

Hon JOHN BANKS: The commission cannot issue a determination on the base price of milk under the Dairy Industry Restructuring Act itself, or calculate its own price. Fonterra must get the price right with this oversight. Is that the proposition?

Hon David Carter: That’s critical. It’s critical.

Hon JOHN BANKS: However, an adverse commission report could be used to provide evidence for an investigation under the Commerce Act if anything was being done tricky by half. I cannot understand the parliamentary Opposition. Why would they not support it at the first reading? Why would they not be much more constructive?

Hon David Carter: They hate farmers.

Hon JOHN BANKS: That is not what they said.

Hon David Carter: David Parker will speak next. He’s the worst. He hates farmers.

Hon JOHN BANKS: He would not know a farmer if he saw one on Remuera Road. They parachuted him into the Epsom electorate and he failed dismally. He came up there and said he was the frontrunner; they said: “Yes, to get out of town.” Anyway, we will get back to the bill. I know that member quite well. I got to know him quite well.

The milk manual disclosure regime expires when the level of competition increases and Fonterra is no longer dominant in the market, and that will not be a bad day. It will not be a bad day. The ACT Party says we want competition. The ACT Party says we are on the side of the farmers. At that point Fonterra would no longer set the market price of raw milk, and that is quite a good day to look forward to. That is the position ACT would like to achieve in the milk market: a range of viable processes for farmers to choose from—a whole range. They will look out over the paddocks, past the Jersey cows, down the gateway, over the road, and past the milk tankers to see the viable processes that they can choose from.

The ACT Party wants—you will not be surprised at this, and I want the Opposition to listen carefully—more competition and choice for farmers, and we want less regulation. All in all, this is an extensive regulatory regime over the production of milk. ACT is the less regulation party. We want business minding its own business. We want the Government out of the business of business. That is why there must be a clear public interest that warrants the processes proposed in clause 13, and we are going to be interested in that. Such a clear interest would be to address the risk that Fonterra prices milk in a manner that might substantially lessen the chances for competition, or that there is a real risk of anti-competitive behaviour. In the ACT Party we do not like anti-competitive behaviour. In that case ACT would want to see something done. ACT’s objective has always been to see competition in the dairy sector. Ideally, that is best achieved by a range of viable processor options for farmers. That is what we are heading for. If the Dairy Industry Restructuring Act is currently hampering viable competition for Fonterra because of the way it sets the base price of milk, then this House will need to act to try to make the Dairy Industry Restructuring Act better. Much as ACT dislikes regulation, because we need to get off the backs and out of the pockets of businesses, ACT dislikes anti-competitive behaviour even more.

I want that member to get up on his hind legs and tell us that the Labour Party does not want anti-competitive behaviour in this tradable sector of the New Zealand economy, and why it will not support this bill at its first reading so that it can hear from the real men and women of this country who earn the foreign exchange earnings to pay his wages and to keep the parliamentary Opposition in the business that it is not very good at. ACT will be looking for public interest that warrants further regulation of Fonterra. We await the deliberations of the select committee. The only way we can get the deliberations of the select committee, Minister, is to support this bill at its first reading. What is wrong with that proposition? I ask the front-bench member of the Labour Party soon to get up and tell us what he thinks.

Hon DAVID PARKER (Labour) : And I gladly reply. I think when accusations are made that the Labour Party is not in favour of a prosperous dairy sector, we should have regard to history. It was the Labour Government, under Michael Joseph Savage, that formed the Dairy Board in its original form, trying to vertically integrate the industry in order that farmers would get a decent slice of the value chain between farm gate and supermarkets—or the predecessors of supermarkets back then.

Shane Ardern: Tooley Street buyers, London.

Hon DAVID PARKER: Tooley Street buyers, thank you. It was the Clark Government that created Fonterra. Members do not have to have an especially long memory to recall that at that time the merger of the two main dairy cooperatives, New Zealand Dairy Group and Kiwi Cooperative Dairies, required the intervention of this Parliament because otherwise it would have been blocked because of domestic competition concerns under the Commerce Act. We in this Parliament, led by the then Labour Government, said that we thought that it was in New Zealand’s interests that we guard the export interests of New Zealand’s dairy industry, which were best met with a strong cooperative that was New Zealand - owned, that was vertically integrated, and that maintained New Zealand ownership of that value chain in the same way that had been the objective of the original Savage legislation in much earlier years.

We heard from John Banks—at times an entertaining speech—that we should be going past the woolshed as we went to see the dairy farmers. He was mixing his metaphors there. I would say to Mr Banks that what we need to watch out for here is that if we do not get this right in this Parliament, it will not be the cows that are getting milked in the future; it will be the farmers. Unless they maintain long-term control of the vertically integrated structure that we currently have through Fonterra, they and the New Zealand economy will be worse off.

I agree with Mr Banks that, in general terms, the Government should stay out of business. We are not in the business of business. We should be getting out of the way of business where we are in the way of business. But previously Fonterra came to this Parliament and asked for special privileges that it said were in New Zealand’s wider interests. Mr Banks, we do not sit here just for the interests of farmers, we do not sit here just for the interests of Fonterra; we sit here for the interests of farmers and Fonterra and the New Zealand public. I did not hear you once mention the interests of the wider New Zealand public. We believe that that public interest is best preserved if the cooperative structure is preserved into the future. You ask why it is—

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

Hon DAVID PARKER: We were asked what the point of principle is that lies at the heart of our opposition to backing this bill, the Dairy Industry Restructuring Amendment Bill, at its first reading, and it is that there is a fundamental flaw in this legislation that should not have been in it when it was introduced.

Hon John Banks: Change it.

Hon DAVID PARKER: Well, fundamental flaws ought to be fixed before legislation is introduced. We do not trust that member or the National Government to fix this at the select committee, and that is why we are opposing it. If it is fixed at the Primary Production Committee to our satisfaction, we may revise our vote at later readings, but we are not confident, based on the unwillingness of the Government to address it until now, that it will be.

That point of principle is that if this legislation is passed, without any further recourse to Parliament—without any further recourse to Parliament—two things could happen that could lead to the long-term loss of control of the cooperative, the undermining of the cooperative structure, and the eventual loss of our vertically integrated dairy sector. Those two steps that would need to be taken do not require any parliamentary intervention at all.

The first is that the Minister of the day, Mr Carter, the current Minister for Primary Industries, would have to pass a regulation to say that the new capital rules will apply. OK? What happens when those new capital rules come into force is that for the first time in our history of this cooperative, the income stream from the cooperative share can be owned by someone else. As to the dividend flow from the co-op share, at the moment for every kilogram or every 1,000 kilograms of milksolids that a milk farmer delivers to Fonterra, they have to own a co-op share, and they cannot sell it to anyone else. Under this legislation, not only will there be able to be trading amongst farmers of shares so that someone can have more shares in the co-op than they deliver milk, and someone else can have fewer—that is a big change, for a start—but, in addition to that, we are creating this new class of shares where the future dividend flow, and increases and decreases in the value of the share above the value at the date it starts to trade, pass to the person who holds the rights on those shares rather than the farmer.

Mr Banks, you tell me what the control is on that moving to 100 percent over time. I will tell you the answer to that, because I asked Fonterra, and it told me that it is a provision in the constitution. So without any recourse to Parliament, the limitation on the number of shares that can be separated from their income flow and traded on a separate platform can be changed—without any recourse to this Parliament. It could go from Fonterra’s current intention of it being about 5 percent or 10 percent to 15 percent, to 20 percent, to 30 percent, to 40 percent. At which point does the tail start to wag the dog? There are overseas examples of the separation of profit flow from ownership in a co-op share in the traditional structural sense where, over time, the different incentives have resulted in the long-term breakup of the co-op.

Hon Damien O’Connor: 20 percent.

Hon DAVID PARKER: I am told by my colleague Damien O’Connor that that has happened with percentages as low as 20 percent of the shares being in this different platform.

Why does this happen? Well, it happens because the holders of different classes of shares have different incentives. The traditional cooperative model is driven by the belief that vertical integration is the long-term driver of profit. You do not have to be a brain surgeon to know that for the majority of the holders of these shares outside of the traditional co-op share structure in this market, which is trading in rights to dividends and increases in value of the share, their motivation is not necessarily the long-term vertical integration of the dairy industry, which has proven successful in New Zealand. Their interest is in short-term to medium-term profit. If they can achieve short-term to medium-term profit by flogging off part of that vertically integrated enterprise overseas, they will militate for it. I think it is wrong that legislation is brought to this House where there is no recourse back to Parliament that would allow Parliament to stop that happening. We would have to intervene after the Act was passed, and everyone would say: “You’re interfering with private property rights. Compensate us, please.”

Since this Parliament intervened in favour of Fonterra, that industry has grown to be New Zealand’s largest exporter—it was already the largest exporter, but it has grown incredibly since, and now, I think, about 22 percent of all new exports are in the dairy industry.

Shane Ardern: 26.

Hon DAVID PARKER: Twenty-six percent. Thank you. Twenty-six percent—a full quarter. There is a national interest here that goes beyond the Fonterra interest and the farmer interest, and we are not satisfied that it is met.

I will say one final thing. The shareholder support that there was for this at the time was against the background of the global financial crisis and a run on Fonterra’s balance sheet caused by people being under pressure and wanting to get some money out, driven not just by the global financial crisis and the effect on land prices but also by a drought at the time, by the liquidity problems that banks were having, and by the pressure they were putting upon farmers. We also had the history of Fonterra not making retentions towards its own capital costs in the future, because it was distributing every cent of profit, and that was a mistake by the then directors of Fonterra. In fairness to them, they now acknowledge that that was wrong, but Fonterra is not stuck with that problem for the future, so the idea that Fonterra is in some dire position if this legislation does not pass is not accepted. It has got to where it is under its existing structure. It has got through the global financial crisis, that drought, and its problems at the time without recourse to this structure. And, although it might want the legislation, it will not bring it to its knees if it does not get it.

This legislation does not include essential protections. It is absolutely shoddy practice on the part of the Minister for Primary Industries not even to mention the facts that I have canvassed about how this could change over time without further recourse for Parliament to stop the growth in trading these shares outside the traditional co-op structure, and that is the principal reason why I am objecting, at this stage, to this legislation.

STEFFAN BROWNING (Green) : The Dairy Industry Restructuring Amendment Bill is a bill that National should have left for a major rethink. This bill is being introduced at a time when farmers are increasingly expressing dissatisfaction with the Fonterra board’s direction and decision making. This bill should not have been introduced when 10 percent—and increasing—of Fonterra’s members have signed a petition asking for another vote on Trading Among Farmers. These farmers are an important part of the 80 percent who voted in good faith, who voted in principle, for something that Fonterra said would ensure 100 percent New Zealand farmer ownership and control of their cooperative.

The system now promoted and supported to this House by the Government is something quite different, and is much closer to the partial float that farmers rejected outright in 2007. The June 2010 vote was not for a vehicle that would allow for overseas investors to gain dividends at a cost to themselves, the New Zealand dairy farmers. This bill will drive lower farm-gate milk prices while supporting profits for non-farmer investors. We want New Zealand family farmers to get a good return on sustainable production, not to be encouraged by the need for dividends for overseas or outside speculators or to have to intensify their production management systems to satisfy those dividend needs.

The co-op model suits New Zealand very, very well. It has developed well as a proxy for the past producer boards that developed buffers for their highs and lows of production and price. Fonterra itself is an example; Zespri is another one—both very good examples of successful co-op models. Our issue here is that the Government is supporting a rush of blood to the Fonterra executive’s head, as Fonterra becomes increasingly distant from the family farmer member base. The demise of ENZA and the Apple and Pear Marketing Board, and the loss of that single-desk approach to pipfruit marketing and industry management, has cost family farmers and rural communities dearly. This Dairy Industry Restructuring Amendment Bill appears to be geared more to beginning the demise of the strong cooperative structure of Fonterra, and will ultimately benefit only the Government’s friends, competing processing companies, and, possibly, those near Fonterra’s executive or the overseas interests, which are all waiting in the wings for some unearned dividends.

We need to keep any profits for developing sustainable family farms. There is no need for Trading Among Farmers. Fonterra has the capacity to create the level of seasonal and entry and exit buffers that Fonterra says it needs. It has its own capacity already. Modest retention can quickly achieve that. That has been proved by the hundreds of millions already retained in last year’s figures, even. This concept needs to go back to the very farmers who will be hit negatively by misguided, and potentially greedy for some, legislation. We want New Zealand family farmers to be producing sustainably. That needs optimum returns to them, not to some speculator. Transparency of milk price setting is fine, but the real driver from the New Zealand public in discussion on milk price setting was the retail price, and a separate bill busting open the supermarket and full supply-chain pricing mechanisms is probably needed.

ACT clearly loves this bill, just as it may have enjoyed Zespri being busted open. But Zespri, thankfully, is still intact. We need to make sure that Fonterra stays intact in the way that was intended. This Parliament needs to protect New Zealand family farmers. Price transparency—certainly. Price and exit and entry buffers—definitely. Sustainability—always. New Zealand is looking to Fonterra and this Parliament to get farming right. Selling a co-op’s dividend system and milk pricing, by this bill, does not achieve this. The Greens oppose this bill in this form because of that.

New Zealand’s sustainability issues that we keep bringing to this House—especially in terms of rivers and fresh water, stopping nitrate leaching, and concerns about animal welfare, nitrous oxide emissions, and methane emissions from farming—can all be achieved by keeping family farmers with good incomes for themselves, not for somebody else taking that gain.

If we want our New Zealand farmers to be producing the best and to be branded the best, we have to make sure that they get a good income, that it goes to no one else, that it stays there, and that they will be meeting those needs that more and more they are being asked to meet.

The Greens oppose this bill in this form, if it gets to the Primary Production Committee. It would have been fantastic if the Minister for Primary Industries had pulled this bill today or yesterday, before it got to this stage. He heard the voices of the farmers. He has ignored the voices of the farmers. This needs—

Hon David Carter: 80 percent of the farmers want it.


The ASSISTANT SPEAKER (H V Ross Robertson): Order! Can I just remind members on the cross benches that they should realise that because of the close proximity, it can cause the microphones to muffle and make it difficult for the Speaker, and it is out of order.

STEFFAN BROWNING: We want those New Zealand farmers to be doing their very best. We have to support them doing their very best. ACT and National going down this path of supporting a runaway Fonterra executive, who seems to want to have outside investment into that organisation, is a mistake. The Greens will oppose this. As I say, the Minister should have listened to the farmers and should have pulled this out. If this bill goes through to the select committee, we will be doing our best to look at it in such a way that we can get improvements that would make it meaningful and fair. As it stands, it is not to be supported. Thank you.

SHANE ARDERN (National—Taranaki - King Country) : Before I start my comments in relation to the Dairy Industry Restructuring Amendment Bill, I declare an interest. A family trust I am involved in is a shareholder in Fonterra. I thank the Minister for Primary Industries for sending this bill to the Primary Production Committee. I read with some interest just recently in a press statement by a senior press gallery person that it was being sent as a sop to farmers. Well, I just want to clarify one thing. Every piece of legislation that has ever been related to the dairy industry, every piece of legislation that has ever been related to the dairy industry—that is, legislation, not regulation, because, of course, regulation goes to the Regulations Review Committee—goes to the Primary Production Committee. So I am not sure where that person got that from. Maybe she was interviewing her computer keyboard, but perhaps she could tell us where that came from at some stage in the future. It would be interesting.

As the Minister has outlined, Fonterra was formed nearly 11 years ago to create a structure that allowed individual farmers to band together and compete in the international market place. For those who may be listening to this debate, a little bit of history at this time is probably beneficial in putting this debate into context. Originally across New Zealand there were many hundreds of independent dairy companies—in fact, I believe there were about 104 in Taranaki alone. These companies were either farmer cooperatives, or publicly listed or privately owned companies. They used to sell their products independently to both domestic and international markets.

It soon became obvious to them that the Tooley Street buyers of London, who used to come out en masse in those days, and we are going back into the 1930s and 1940s, were playing one company off against the other—some things never change, and some things change all the time—and lowering the price of dairy products overall in New Zealand. So collectively the dairy companies decided then, with the support of their farmers, to go to the Government and form the New Zealand Dairy Board, which was a legislated single-desk seller. This structure was asked for, and paid for, by the farming companies. Mechanisation over the years has driven rationalisation, and most of the companies merged to form mega companies. We got to the point where we ended up with two large companies in New Zealand dominating the Dairy Board’s affairs. At this time the Government desired to see deregulation of producer boards, and for the dairy industry this resulted in the formation of Fonterra.

Fonterra in its 10 years has achieved 8 percent growth annually. No other New Zealand - owned company has achieved this. Fonterra is now the dominant milk trading company in the world. That means that the original objectives have been met—that is, to have critical mass and be able to compete internationally. What is unique about New Zealand’s dairy industry is that we export 95 percent of what we produce, as opposed to most dairy nations, where the domestic consumption is 95 percent or better—and in fact in some cases, of course, it is well over 100 percent; that is why we are able to export to them. The industry brings $20 billion of export receipts into New Zealand and represents 26 percent of New Zealand’s export earnings. I want to go on record today to say that I am proud of the achievements within this industry, and I believe that New Zealand stands to gain substantially if this industry continues to prosper. Interestingly, most other primary industries have said they would like to create a Fonterra-type model for their industry.

The bill has two parts: raw milk regulation, and Trading Among Farmers and shares regulation, which is commonly known as TAF, as the Minister said. I do not intend to go into a lot of detail here, because most of that detail has already been canvassed and I am sure speakers on the opposite side will raise some of that detail. But I know that there are some communities and some farming groups that are concerned about the proposed legislation, and I look forward to hearing submissions highlighting the issues within the industry, through the select committee process. There has been concern about the domestic price of milk and the transparency around farm-gate milk price setting. I look forward to the findings of recent investigations and how the proposals before us will affect this. The 10,300 dairy-farming shareholders who own the Fonterra company and have built it to the stage it is at now—some putting their own farms at risk through their directorships and developing new technologies in large production plants that are the envy of the world—are concerned that there is potential for less than 100 percent farmer ownership. So we look forward to hearing those submissions.

Whatever the outcome of this process and no matter what anyone else thinks, Fonterra is made up of 10,300 farming shareholders, and their determination and investment must be acknowledged. Fonterra is not a large, greedy corporate, as some have portrayed it. It is a farmers’ market with enough critical mass and scale to compete in the international market place. So for this Parliament to not recognise that and not focus entirely on ensuring that all of those virtues are protected going forward, and that we end up with legislation that enables that to happen, will not be in the best interests of the farmers, Fonterra, the dairy industry at large, the country, or the economy. It is obvious to me that the process through the select committee will allow for much debate, and I look forward to the Opposition’s role in that process of having a look at the detail around this legislation.

RICHARD PROSSER (NZ First) : I find myself again in the position of agreeing with quite a lot of what is being said on the other side of the House, and yet disagreeing with what they propose to do about it. New Zealand First is opposed to the passage of the Dairy Industry Restructuring Amendment Bill in its present form. If the bill does make it through to the Primary Production Committee we will certainly relish the opportunity to tear it to pieces there, as I am sure other members on this side of the House will do. I think, in actual fact, some good may come of having the various proposals in the bill put forward for public scrutiny and further opportunity for some of Fonterra’s own farmer shareholders to make submissions, despite what the board has been telling us, telling the nation, and telling politicians about support that existed previously, at around the 80 to 90 percent level for the Trading Among Farmers scheme particularly. That support was given on the basis that farmers giving that support were given an assurance that the shareholders would retain 100 percent ownership and control of Fonterra Cooperative. Now it appears that the rules, which have not even been finalised as yet, may be pointing away from that, and that the way in which the share issue, particularly the units attached to them, may be traded will in actual fact have the opposite effect, and that it will not be possible to deliver 100 percent ownership and control.

New Zealand First believes that it is vital that this industry, which is an enormous part of our overall economy, stays entirely within the ownership and control of New Zealand and New Zealanders, and the farmer shareholders who have built this industry. As a nation, as everybody is aware, we dominate the world export trade in the dairy industry. We supply something like 95 percent of the milk and milk products that are traded internationally. Because of that, I think we have allowed ourselves to believe, in New Zealand, that we are significant as a player in the world dairy market. In actual fact, that is not the case. New Zealand produces something like 3 percent of the world’s milk. So although we produce 95 percent of exports, those exports are very insignificant in terms of world production. Fonterra might be the ninth-biggest dairy company in the world, but it is less than half the size of the eighth biggest. We are a minnow in terms of overall production. There are dairy companies out there in the world that can swallow the entirety of New Zealand’s economy—never mind the dairy industry—and given the chance to do so they will do just that.

But it is vital that New Zealand’s dairy exports continue to grow, and it is vital for the simple reason that eventually this bubble that we are experiencing at the moment is going to burst. It is going to burst, partly because of Fonterra’s own success in growing itself as an export business. There will come a point where the markets that we currently supply with bulk commodities from New Zealand are supplied from the farms that Fonterra itself is developing in those overseas markets. When those markets can be supplied from those markets, what the Fonterra Cooperative will have to do is rely on what are currently its highest-value sectors of its business—those being its brands and its high-value ingredients. To do that, we are told, Fonterra needs to have more money available to grow that side of the business. This we can accept, and this is what Trading Among Farmers was sold to the farmers on the basis of.

If Trading Among Farmers could be constructed in such a way that it did guarantee that 100 percent ownership and control remained with the farmer shareholders, it would be a good thing. But it seems that it cannot. The whole point about share trading is that it does not do anything to ensure that more milksolids are produced in New Zealand. When people start trading in the units, the securities that are attached to the dry shares, what they are going to be making their money out of is not producing milk and selling milk products; they are going to be making money out of buying and selling shares. This gets away from the entire purpose of the dairy industry, which has been built up for 150 years in New Zealand by New Zealand farmers to produce milksolids, to produce the best-quality dairy products in the world, and to sell them to the world. What this scheme will do if it goes through will be to move their focus away from that, to make that the secondary business, almost; to put farmers in the position of becoming first tenant farmers and then peasant farmers, as they rely solely on a milk price that is determined by the other major aspect of this bill. The profits will be made by trading in shares by foreigners.

We oppose this bill for the same reasons that the shareholders council has chosen to oppose it: that it is not what the farmers were sold and voted on originally—farmers were guaranteed 100 percent ownership and control, and that is not now deliverable. We believe that it should be put to another vote, and we wonder why the board of Fonterra appears to be set against the idea of there being another vote amongst shareholders. We believe that that may be because the board of Fonterra also suspects that sentiment may be rising against it.

It is worth noting that although this bill permits Fonterra to instigate the Trading Among Farmers scheme at a point of its choosing up until 2013, it does not actually put any regulations in place around how that trading scheme should function. We are very concerned that while those details are still being worked out, this is not something that Fonterra should be allowed to do arbitrarily. It is like giving it a blank cheque, particularly when there seems to be some discrepancy in the understanding of the system and the motivations between the shareholders council and the board. There are other ways for Fonterra to raise capital if it needs to. It has an AA+ credit rating and could borrow money on any of the world’s commercial markets at extremely competitive rates. Fonterra could continue to retain dividends from shareholders. In actual fact, anything that Fonterra does—other than issue more shares in itself—is going to cost farmers in redemptions in one way or another, whether it is direct or whether they are paying back debt.

There is not currently a redemption risk, as the proponents of this part of the bill claim. Redemption has occurred only twice in the history of Fonterra. But if there is one thing that is going to create a redemption risk, it will be Trading Among Farmers, because it will artificially raise the share price. The first thing that will happen once shares start being traded is they will increase in value. That will increase the motivation for some farmers to quit the business and take the money. Once the value of those shares goes up, it will make it much more difficult for new farmers, for young farmers, to get into the industry.

It opens the door for outside influence and control, as other members have said. If there are no restrictions—and there appear to be no restrictions—on who may or may not purchase the units attached to dry shares, then the people who will buy them will be the ones with the money, and that is going to be foreigners. It is, as the member from the Greens alluded to, a partial float in all but name, and it has already been rejected by farmers, for good reason. There is no purpose to the unit securities, other than to facilitate trading that has no connection to milksolids. We note also that the Fonterra Shareholders’ Council has raised some questions as to the potential conflicts of interest between the due diligence legal committee provider and some of the board members.

For all these reasons, we feel that there is not sufficient good in this bill to let it go through to the select committee. If it does, we look forward to, as I say, examining it closer there. Perhaps in the light of public scrutiny it may not even survive. New Zealand First is opposing the bill. Thank you.

COLIN KING (National—Kaikōura) : It is a pleasure to rise to speak to the first reading of the Dairy Industry Restructuring Amendment Bill. In doing so one does cast one’s mind back to this debate having been quite long and quite tortuous for the many shareholders within Fonterra. I would like to just pay a tribute to the many farmers who are out there, and who at this time of the day will be milking the cows. They will be heads down, and they will be working to make sure that those animals are cared for in a very husbandry manner, and that the staff who are working on those farms will be cared for well—whether they be immigrant labour, or whether they be sharemilking people: couples who are building their way up to getting into farming.

There is no doubt that the dairy industry has been a breath of fresh air, when we consider some of the other models that we have around—whether it be the meat industry or the wool industry. So from that point of view, when you see where the dairy industry came from—that is, what is represented today by Fonterra—it was once the poor cousin of the sheep and beef industries, and today it is looked at to be the model going forward. We have had a lot of that conversation through the debate today, and on that basis, really, it is up to the Government—United Future and National and ACT—to ensure that this bill does go through to the Primary Production Committee.

There is a lot of passion about, and a lot of commitment to, this piece of legislation from both sides of the House. It is very important that we hear the clear messages coming forward from the submitters, because issues have been raised today that have meant that part of the House is against this bill. But really, it is very important that we do get it right and that we satisfy the other side of the House that, in actual fact, we will retain 100 percent ownership by way of control of voting shares in Fonterra. We recognise that Trading Among Farmers is reasonably controversial. However, it is something that has been through a fairly robust process and has been presented to this Parliament. We need to give it due consideration. As far as the redemption risk goes, effectively it is a problem that confronts cooperatives that having the access, being able to enter and to exit freely, does present a risk in that capacity. Whether that risk is as material as we have been led to believe, I believe, will be borne out by the select committee process. That said, we have also got the dubious situation to find ourselves in of what is deemed to be a monopoly and what is deemed to be competitive by way of a model.

There are other issues that will come out during the submission stage if this bill goes to the select committee, and they will be around the continued supply of regulated milk. I look forward to the debate. I trust that the debate will not broaden out too much, and that it does stick to the principles that are articulated in this bill, which are to produce and maintain the most effective dairy industry or milk production in New Zealand. When we do go down this track and we look at the future, we have got a company that by world scale may not be large, but it does the bulk of the cross-border exporting of milk. What we have seen quite clearly is a challenge, quite often, to the model of what we define as healthy competition, because with competition what we see often is a reversal back to the very fundamentals of exporting, rather than the adding of value. It is something that really does worry us, because when we see competition coming in and arguing its case for a fair go, we want to see that it actually contributes to the innovation and the adding of value.

This is going to be a very interesting debate, no doubt, within the select committee, because it is about the very fundamentals of our economy and our primary sector. I look forward to the submissions. I encourage everybody to engage in the process, but I do say to the other side of the House that it is time to have this debate, it is time to challenge some of our fears, and it is also time that we looked at the legislation to bring it up to a situation where we can empower Fonterra to progress ahead into the future with confidence. It is a risk and there are challenges, but can anybody over on the other side of the House ever tell me where business does not come with its risks? When we are working with a perishable commodity like milk, I am confident that we will continue to have a cooperative spirit. My recommendation is that as we go through this piece of legislation and refer it to the select committee, the other parts of our primary sector look at the particular model of Fonterra and learn from it. Thank you. It is a pleasure to speak on this bill and to support its referral to the select committee. I look forward to hearing the submissions with great interest.

Hon TREVOR MALLARD (Labour—Hutt South) : Mr Deputy Speaker, this is for 5 minutes, by way of an arrangement with your predecessor.

Mr DEPUTY SPEAKER: Is this a split call, with the Greens?

Hon TREVOR MALLARD: Yes. I want to thank the member opposite, Colin King, for his contribution, because I think amongst much of what he was saying there was not much difference between us. I think with his being a sheep farmer, being a shearer, his thinking was a little bit woolly, but I think a lot of the issues that he raised are issues that are important to both sides of the House, and I agree with him that the process at the select committee is going to be vital. There is an opportunity there to allay some fears, to make some changes, and to get something that is broadly agreed to by both sides of the House. I think that is something that will be important if this is to proceed forward, because where you have this sort of statutory monopoly, effectively, in place it is something that needs to have the support of more than just the Government of the day.

That is why I regret the fact that the Minister in charge of the Dairy Industry Restructuring Amendment Bill has signalled that he is going to foreshorten the period to even shorter than the 4 months that is now regarded as a short period for hearings of the select committee. I think what he is doing there is taking away the opportunity for process to be followed, for debates to be had, for discussions, and for the possibility of getting some of the issues, if not all of them, off the table.

I say to members opposite that this is not actually strictly a partisan matter. I mean, I think it is fair to say that, you know, I could well have more points in common with the Minister in charge of the bill than with my colleague Damien O’Connor on this. I have looked at the issue carefully—

Hon Damien O’Connor: That often happens.

Hon TREVOR MALLARD: —yeah, there are a few other issues that way—over many, many years and I do know that we have got to somehow better capitalise our dairy industry. There is no doubt about that, at all. It is innovative and we have got to make sure that it gets some more capital in. But despite the long period that this has taken, this has the appearance of being ad hoc, cobbled together, and, at the end, rushed, rather than being a coherent and logical piece of reform.

There are a number of alternatives, and I should say one point I am adamant about is that what this Trading Among Farmers proposal lets happen is the sale offshore not only of our farms but also of our most important exporter and innovator that we have in New Zealand. I think that through that arrangement, this will let people like the company that is trying to buy the Crafar farms aggregate massive amounts—aggregate large amounts—of Fonterra through the trading exercise. There is a question about the way that the units will work and people’s ability to aggregate that.

Having said that, I think there is room in New Zealand for some ordinary Kiwis to invest in the processing or research part of the dairy industry, and this does not give them a chance. This arrangement does not let my constituents in Wainuiōmata and the Hutt Valley have an investment in the research that needs to be done for the dairy industry, but it lets a Chinese-owned lot who suck up to the National Party do it. It lets a Chinese-owned company that is trying to take over Crafar’s farms get into this area, and that is wrong.

There is another area that I think is wrong and I think it needs to be sorted out here, and that is the arrangements whereby companies other than Fonterra have a “take it or leave it” arrangement as far as milk is concerned. Fonterra has to have the capacity for milk, but a whole pile of its competitors can choose whether or not to take that milk, and I think that arrangement is wrong. I think it was wrong when it was set up. I take some responsibility; I have been involved in that over a period of time. I think it needed to be sorted out and it has not been, and I think there are some companies that need to be sorted out there.

I will make one final point, and that goes on to the responsibilities of Fonterra. It has what is effectively a statutory monopoly. Farmers have an obligation to be clean and green, but New Zealanders also have the right to get their milk at a reasonable price. Ninety-five percent of it is exported and people all around the world get our milk cheaper than Kiwis get it. That is wrong. That is wrong, it cannot continue, and if Fonterra expects us to support its arrangements, then it has got to take the lead—not just in a few schools—to make sure that the milk that we have, that we drink on a day-to-day basis, that we use in our baking, and that we use in our cooking is something that is available at a reasonable price.

EUGENIE SAGE (Green) : One of the reasons the Green Party opposes this bill, the Dairy Industry Restructuring Amendment Bill, is what is missing from it and the lost opportunity that the bill represents. It fails to amend the substantive Act, the Dairy Industry Restructuring Act 2001, to allow Fonterra to be far more strategic about the expansion of its supplier base. It fails to protect our lakes, our rivers, our aquifers, and areas such as the Mackenzie Basin from poorly controlled dairying expansion. Fonterra is a very successful cooperative and a major contributor to our economy. We want Fonterra to prosper, but not at the expense of our waterways and our climate. We want Fonterra to be in business long term, and to be able to rely on a genuine “clean, green” brand, not a marketing myth, to promote its dairy products. But it is the rapid and uncontrolled growth in dairying that is trashing that $18 billion “clean, green” brand.

The bill fails, because it fails to change the express obligation that the Dairy Industry Restructuring Act puts on Fonterra to collect and process milk throughout most of New Zealand. Section 73 of the substantive Act requires Fonterra to accept all applications to become a shareholding farmer. It also requires the company to accept all applications to increase the volume of milk supplied by a shareholding farmer. The only circumstances where Fonterra can legally reject supply are set out in section 95 of the substantive Act. That allows Fonterra to reject a prospective supplier only if the cost of transporting milk from the new entrant is greater than the highest cost of transporting milk from another shareholder farmer. So the circumstances within which this can be exercised are very narrow. The bill does absolutely nothing to change that obligation. It does nothing to give Fonterra the ability to apply sustainability criteria, or to decide whether or not it wishes to grow its milk supply in areas such as the Mackenzie Basin given the biodiversity loss that that involves, or whether it wants to slow down the rate of growth of its milk supply in sensitive catchments, such as that of Te Waihora—Lake Ellesmere—New Zealand’s most polluted lake.

As Fonterra’s own legal counsel said during the company’s resource consent applications to treble the size of its Darfield milk processing factory before that factory had even begun operation: “…if individual farmers decide on their own economic or other grounds to convert to dairy, then in almost all circumstances, Fonterra is required to collect and process that milk.” So when that intensive cow-cubicle farming was proposed for the Mackenzie Basin, we had the spectacle of Fonterra spokespeople wringing their hands and saying that although they did not necessarily support dairying in the Mackenzie, and although they did not necessarily support cubicle farms, there was nothing the company could do about it, because the Dairy Industry Restructuring Act obliged them to pick up the milk. The bill fails to deal with that obligation, and the implications it has for water quality from the decisions of individual farmers to convert to dairying. It fails to allow Fonterra to regulate the major component of its business, the supply of milk.

The Green Party recognises that there are limits to growth, and that to prosper long term Fonterra cannot continue to increase its milk volumes at the 5 to 8 percent growth that has occurred recently. Dairying has grown so rapidly in Canterbury that we have the spectacle of individual dairy tankers—43 of them—driving 800 kilometres each day to take milk from Canterbury down to Fonterra’s plant at Edendale. This, of course, involves huge greenhouse gas emissions. So by not amending the substantive Act to give Fonterra the power to decline to pick up milk, the bill is committing the company to a never-ending growth strategy, which is not sustainable.

IAN McKELVIE (National—Rangitīkei) : As a sheep farmer it gives me a bit of pleasure, I guess, to speak to something that concerns what I term the other half of the industry. As a sheep farmer I also know the danger of a fragmented industry, and I do not think for a minute that this Government will be endeavouring to fragment the dairy industry. At this point, having said I am a sheep farmer, I must declare an interest in this Dairy Industry Restructuring Amendment Bill, however, as I do have an interest in Fonterra through family interests. None the less, I need to refute now a couple of the extraordinary things I have heard in the last quarter of an hour.

I did not hear the last speaker refer once to the bill. I do not know what fresh water has to do with this bill—frankly, I think, nothing. I think, however, if you look at the strength of Fonterra, and if you look at the strength of the dairy industry, the best chance we have of resolving some of the issues that the Green Party has talked about is to ensure that Fonterra remains strong, because it will be able to put money into research and development, which will certainly overcome a lot of the issues that the Green Party is obsessed with talking about. I also want to refute a claim that the previous Labour speaker made about the 4-month time frame, and the reason for this bill being pushed through the select committee process faster. It certainly has nothing to do with precluding opportunities to speak or to hear about the matters concerned in this bill. It is simply a matter of letting the industry get on with its business in the new financial year. If this bill does not get through Parliament in time, it will inhibit the industry’s ability to develop and grow.

The great progress and changes since Fonterra’s inception have brought about the need for change in the Dairy Industry Restructuring Act. I do not think there is any doubt that the significant growth in this industry in that time also means we need to change this Act, and make progress for the future. We are talking about amending an Act that has been in place for nearly 10 years, and we must remember also, in the process of amending this Act, that farmers asked for this Act in the first place. They asked this Parliament to assist them in forming Fonterra. As a result of that, it is necessary for this Parliament to continue to regulate Fonterra in one form or another. We do not have any choice, in my view. We have a responsibility to the New Zealand community to continue to reform and act on this dairy industry Act, and, consequently, the amendment to it, the Dairy Industry Restructuring Amendment Bill.

The dairy industry is challenged by being by far the biggest industry in New Zealand. It is by far the biggest contributor to this country’s well-being, and I think inevitably in New Zealand we tend to look at big and successful organisations, just like we look at big and successful sportspeople, and knock them off their perches from time to time. I think that is a tragedy for Fonterra and for the dairy industry in New Zealand. I think we need to give Fonterra all the assistance we can to ensure that it is able to compete in New Zealand, to compete internationally, and to look after—as the member for Taranaki - King Country talked about—the large number of shareholders that Fonterra has. As I said a minute ago, Fonterra has a great ability, because of the strength and the unity of the company, to reinvest a large amount of its surpluses in research and development, an absolutely critical area for New Zealand agriculture—not only for the dairy industry, but for New Zealand agriculture. To encourage the strength of Fonterra in that respect is equally important.

I think to talk of the risk to Fonterra from outside investment is also flawed, and I think we need to remember, as the member for the Greens who spoke earlier talked about, that from time to time even New Zealand family farms need a place to park some assets for a while as they get through very difficult times, and the best solution for this—in the dairy industry, particularly—is to be able to park your shares. If you can park your shares, it avoids your need to draw down larger debts from banking organisations and the like.

Hon Damien O’Connor: Rubbish! You never buy them back.

IAN McKELVIE: Absolutely they have to buy them back, and that is the opportunity that they have got.

Hon Damien O’Connor: You won’t be able to afford to buy them back. You know that, too.

IAN McKELVIE: That is not correct. The member for West Coast - Tasman is getting a little bit confused. Clearly, any business goes through times of difficulty, and I think this is an ideal way of assisting the development of this industry, and the development of those farmers, by allowing them to park shares in what will be known as the shareholding company. I think it is very good process for the industry to go through.

Not only that, but we must also remember that Fonterra needs an enormous amount of capital to survive and to continue to operate. However strong we think the shareholders and the company are, inevitably, as we have seen in the last 3 or 4 years, companies come under stress and shareholders come under stress, and they need to find cash somewhere else. If we do not form and put in place a very strong policy and process for Trading Among Farmers, as it is known, and as clause 8 of the bill puts in place, then I think we will also leave Fonterra at some risk. I think, again, the scaremongering from, particularly, New Zealand First and the Greens about the support for this part of the bill is nonsense. There is absolutely no doubt that the majority of Fonterra’s shareholders did, and still do, support this part of the bill.

They support it with some nervousness, and if the member—I think she comes from Auckland—does not believe me, she can come with me to Taumarunui or to Feilding, stop and get some petrol, and she will be bailed up by a dairy farmer on every corner in my electorate, as I am sure she would be in many of our other electorates. She will very quickly learn that they do, on the whole, support this, like the previous speaker for National. They are a little nervous about some aspects of it, and that is why I welcome the opportunity to take this bill and look at it through the select committee process—[Interruption]; there is a parrot over there—which I am sure will resolve a lot of the fear and the issues that some of our dairy farmers have about it.

The next issue I want to get on to very briefly is clause 13, relating to the base milk price and the way this is set. I think you will be able to realise that the relationship between the base milk price and the value of the shares is absolutely critical to the future of this industry, so it is most important that this is regulated. It is regulated now, to some extent. It is most important that this is regulated, because it enables us to see a transparent milk price - setting process, and, at the same time, it takes the value of the share and places it to one side in that process. It is most important that this is transparent as well, as we go through this process.

As I said, I look forward to this bill going to the Primary Production Committee. I look forward to the submissions. As I said, I am stopped in streets all around my electorate to talk about it, so I am sure that will ensure that what comes through in the form of submissions is very strong. We must ensure the bill eventually appears in Parliament in a form that satisfies the needs of our dairy farmers, the industry, and the country. We owe a responsibility to our No. 1 industry, and we must continue to foster it. I have no problems supporting this bill going to the next stage, and I look forward to the debate in the select committee, as well.

Hon DAVID CUNLIFFE (Labour—New Lynn) : It is a pleasure to take a call on the Dairy Industry Restructuring Amendment Bill and to recognise that it is probably one of the most important economic bills to come before this Parliament in some time. If this Parliament fails to exercise the due diligence and good judgment that is tasked of us on this matter, the effects will be felt for generations.

I am a former diplomat who has represented the New Zealand dairy industry overseas in many markets and on many occasions, and I was also a management consultant tasked with advising on the formation of Fonterra from Kiwi Cooperative Dairies and the New Zealand Dairy Group. I have long taken an interest in this most crucial industry for the New Zealand economy and am proud to have been part of the Government that set up Fonterra in the first place.

Crucial to New Zealand, Fonterra is; roughly one dollar in every five of New Zealand’s export earnings comes from this industry and through this cooperative. Many of our trade negotiations have been guided by the interests of this industry, arguably the one and only industry where New Zealand has world leadership and global scale. If we lose progressively or dilute over time our sovereign control over the one industry where we are a world beater and a world leader, literally we will undermine the future solvency of our very country and the future sovereignty of our very country—that is how important this is. Thirty percent of the global dairy trade comes from or through Fonterra—one bucket of milk in three traded anywhere in the world. No wonder the US dairy industry, when I was a diplomat in Washington, was terrified of Fonterra—it was the New Zealand Dairy Board then—because it was the big guy on the block, and there are not many industries where we can say that. Fifteen thousand people work for Fonterra, it is a major employer in this country, and we want to see it grow.

We want to see it strong, we want to see it play well in international markets, but the issue is whether this bill provides the enduring legislative framework that will lead to that outcome, and here are the reasons why. After much consideration, Labour has determined that, on the current drafting, it does not. I can assure you that this has been much debated in our caucus and we have not come lightly to the position of opposing this bill. It has been much consulted on around the country and previously all matters around this industry have been a bipartisan consensus between National and Labour.

This is a big departure for us. Here is why we have come to that point. The first issue is the lack of detail in the bill and the uncertainty around crucial governance issues that should not be left to chance or the accumulation of financial market pressures. If the Government were in a position where it could guarantee crucial issues of the sovereignty of farmer control, we may well have a different opinion, and we are open to being satisfied on some of these points through the select committee process. We are concerned that the bill does not enjoy the support of the Fonterra Shareholders’ Council nor the increasing number of farmer shareholders. And the reason for that is simple. They were told early on in the Trading Among Farmers consultation process that farmer ownership and control would be 100 percent guaranteed, but it is not. I will go through the reasons in more detail, but it is crucially around the sale of units that give ownership of the income stream from the milk production to anybody in the world: New York hedge funds, Chinese State-owned enterprises, New Zealand share market interests, institutional banks—you name it, they are powerful pressures and they will only accumulate, and this bill opens the door. We need to be extremely careful about the fine print, and farmers themselves have not been shown the fine print and in increasing numbers—and the Speaker in the Chair is a Southlander himself and a fine one—they are asking why not. They are asking why not.

The sale of units, as I say, is not limited to farmers. It is a different class from wet shares and dry shares. The counterargument has been raised by members opposite that OK, the voting rights stay with the share, they do not attach to the units. That is true. But hello, money talks; big money talks loudly, and the money goes with the unit. There is a fundamental conflict of interest, it seems to us, that is set up by that division. The owners of the units will want the profit to be taken downstream where it can attach to their interests. The farmer shareholders will want the profit repatriated to the farm gate. They are headed in different directions, they have different interests, and the bill and the commentary are not clear as to how that will be arbitrated.

The situation is inherently unstable. Take, for example, Kerry Group in Ireland. It opened the door to a very small proportion of non-farmer shareholdings through A and B class shares not dissimilar to this arrangement—not exactly the same, but not dissimilar. And what happened? Effectively, corporate control was lost well before the 50 percent threshold. Actually, it was lost at around 20 to 25 percent. This bill has a cap of around 20 to 25 percent, but, crucially, that cap is in the constitution of the cooperative; it is not in the law. Parliament is giving a blank cheque to future management under future pressure from unknown foreign institutional investors, and we will have no comeback if we pass this bill in this form with a blank cheque to Wall Street. As a bottom line to earn Labour’s support—and I again stress that on a matter of this fundamental national importance bipartisan or multipartisan support around this House is fundamentally the right thing to do—we should argue this out until the majority of us are satisfied. If that cap could be put into law, and if the detail were clearer, we would be somewhere closer to it.

And this is not an academic question. I have heard today that next year’s payout forecasts are likely to start with a five—that is, not $7 per kilogram milksolid, but around $5 something, and that will put a lot of pressure on some heavily indebted farm balance sheets. Add to that the fact that the tax structure of farming enterprise may change a few years from now and there may be incentives for farmers to farm more for profit and less for capital gain, and that would be a good thing in my view, all things being equal. But that will add more pressure on farmers with stretched balance sheets to sell the rights to the downstream production through the units. And this bill provides for the constitution that allows up to 200 percent of the individual farm production to be leveraged out. Well, what a hedge fund’s dream that little one is: over-leveraging the farmers’ commitment to 200 percent, if I am well advised on that matter.

We want assurance that this Government will not allow the future flotation of this cooperative on the New Zealand stock market or any other stock market. That would be a fundamental damage to the cooperative nature of this enterprise—New Zealand’s most important single business. Sometimes people might laugh about cooperatives, but where would we be if Fonterra was not a cooperative? And the answer is that it would already be foreign-owned, for goodness’ sake. It would have been taken over by Kraft or somebody else years ago. The reason it is New Zealand’s No. 1 export earner—not America’s, or Denmark’s, or China’s, or somebody else’s—is because it is a farmer-owned cooperative, and anything that dilutes that or puts it at risk cannot be waved through by this Parliament on a wing and a prayer that some future manager will stand by the spirit of this legislation, even though they are not bound by the letter. I want my grandchildren to know what it is like to be in a country that is a world-first in at least one industry. And this is it; there is no other. Do not let it go. Do not put it at risk. And if you are not sure and if it is not clear on the details, stop, think, do not pass go, do not sell 200 percent.

MIKE SABIN (National—Northland) : I am glad to take a call on this very important bill, the Dairy Industry Restructuring Amendment Bill. For the sake of the House’s knowledge, not only am I the member of Parliament for Northland but I also have a little bit of skin in the game in the past, as a dairy farmer of some 4 years, although it did seem like 40 years at the time, I must say. Diving around in ditches, wondering what my arm was doing in the piece of a cow that it should not really be in, trying to rescue calves—I reflect on that with great heart and the due respect I afford our dairy industry for the immense contribution that they make, all jokes aside, to this nation. I am also a member of our caucus committee and fortunately have the opportunity to sit on the Primary Production Committee as a substitute, although I very much hope that I am able to contribute in a full-time role on the select committee as this bill makes its way through the process.

Back on 24 January the House will recall that the Minister set out a series of proposals about this bill. It has been over 10 years since the Dairy Industry Restructuring Act was first instigated, and make no mistake—and I think it is acknowledged across this House—that we have Fonterra because of the Dairy Industry Restructuring Act. It provides for a platform internationally that gives us the most effective economic capability, while providing some domestic competition and tension, and I think everyone wins in this scenario. But some 10 years on, it is fair to say that it is time to look at the policy settings, it is time to look at this legislation, and therefore we find ourselves discussing this bill.

Can I also point out that it is important that there is heavy discussion and debate around this, not only in this House through the select committee process but on the streets, leaning on farm strainer posts, and so forth, because it is so important to this nation. It is no great surprise to anyone that the dairy industry is almost double the size of the nearest export earner behind it. It is in everyone’s interests that we absolutely achieve the best platform for Fonterra, for our dairy industry moving forward. Therefore I welcome this process and I welcome the submissions that will no doubt be heard at the select committee, from perspectives across the board.

The dairy industry is very important to Northland; in fact, it underpins our economy, an economy that does have its challenges. I was fortunate, after the initial proposal and discussion, to hit the road to be amongst farmers and to listen to their concerns. Interestingly enough, the two concerns that they raised the most were in actual fact around the conditions under which their competitors received milk, the level playing field that needed to be achieved in that regard, and the issues around virtual processors. So I welcome the opportunity for those within the industry to bring forward their concerns around what was to them something that we very seriously needed to look at, and certainly need to apply our thoughts to.

Can I just say at this stage, as the last speaker, that I would like to reflect on some of the important messages that this debate has touched on and the things that I think we need to reflect on as this bill moves through this process, and that we try to find consensus in something that is very important to this nation and to the foundation blocks of our economy.

The changes to the Dairy Industry Restructuring Act are about ensuring that we have the most efficient dairy industry in New Zealand, and that we are at the forefront of this industry globally. It is a $13 billion company—$13 billion. This bill enables Fonterra to raise capital and reinvest and grow further in the industry. This bill will improve the transparency of, and the confidence in, Fonterra’s farm-gate milk price setting. It is important to note that there is a disconnect between the public’s understanding of the farm-gate milk price and what they see in the supermarkets.

This bill will also primarily embed Fonterra’s current milk price governance arrangements in legislation, it will require Fonterra to publicly disclose information on its milk price setting, and it will introduce an annual milk price - monitoring regime to be undertaken by the Commerce Commission.

There is nothing to hide from in terms of transparency. The devil is in the detail. I welcome submissions on this. However, let us not forget that with this bill the time has arrived. This industry is too important to New Zealand not to get this right, and I welcome the opportunity to participate in this process moving forward.

A party vote was called for on the question, That the Dairy Industry Restructuring Amendment Bill be now read a first time.

Ayes 64 New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.
Noes 54 New Zealand Labour 34; Green Party 11; New Zealand First 8; Mana 1.
Bill read a first time.

Hon DAVID PARKER (Labour) : I raise a point of order, Mr Speaker. I seek guidance from you in the Chair as to what is the point at which we debate the debatable motion.

Mr DEPUTY SPEAKER: It is the next one. The first question directs the bill to a select committee, and we vote on that. Then the Minister will move the instruction to the committee.

  • Bill referred to the Primary Production Committee.

Hon NATHAN GUY (Associate Minister for Primary Industries) on behalf of the Minister for Primary Industries: I move, That the Primary Production Committee report finally to the House on or before 1 June 2012. Can I, first of all, give you a couple of reasons for that shortened select committee process. But before that, as Associate Minister for Primary Industries, it is important that I let the House know that I can confirm in my own personal interest that Fonterra shares are owned by Kereru Farm (2005) Ltd. The company is owned and controlled by my parents, of Levin, and I have no current legal interest in Kereru Farm (2005) Ltd. I just wanted that placed in Hansard before the House.

Importantly, what I wish to do now is make some comments on why the Government has decided on a slightly shortened select committee process. If Fonterra wants to proceed with Trading Among Farmers—and it is our indication that it does—it would need the legislation to be passed by the end of June this year, 2012.

Of course, the select committee is the appropriate place to have the debate that has occurred in the House today. Shareholders and members of the public can come to engage with the select committee and also engage with officials. Once legislation is passed, of course, it is up to Fonterra to engage and sell the concept to the investor community in terms of Trading Among Farmers. It is difficult to promote Trading Among Farmers without the legislation being passed, and I think it is worth noting in summary that Fonterra shareholders have already voted about 80 percent in favour—

Mr DEPUTY SPEAKER: Order! I must just caution the member. This is probably going to be the first debate we have had about this extension. The only issues that can be debated by either side are the reasons precisely around why the date of the report back is different—the instruction in relation to that. There is nothing else in this motion.

Hon NATHAN GUY: Thank you for your guidance. In summing up, I have tried to give the House some indication of why the Government supports this select committee process, which is for it to report back in June this year. In essence, we are looking forward to receiving those submissions and looking forward to the Primary Production Committee reporting back on or before 1 June 2012.

Mr DEPUTY SPEAKER: Just before I call the honourable member I would invite members to look at Standing Order 286(3). This may well be breaking new ground.

Hon DAVID PARKER (Labour) : New Zealand has very few constitutional protections against bad law. We have only one House of Parliament. Once a law is passed here there is no Upper House of Parliament conferring protections upon New Zealanders against bad law. We do not have a President who can veto bad legislation. One of our most important protections is the select committee process, and the select committee process has been deemed so important by this Parliament that at the end of the last Parliament we changed our Standing Orders. We in this Parliament recognised that through truncating the select committee process, we undermine good lawmaking.

One of the reasons why we normally have 6 months for select committees—

Hon Nathan Guy: You didn’t support it going to the select committee.

Hon DAVID PARKER: We did not support the bill, the Dairy Industry Restructuring Amendment Bill, going to the Primary Production Committee, because we opposed the bill—correct. Any bill that goes to a select committee should have the benefit of the full 6 months if it is contentious, especially if it is important, especially if it is opposed by the Opposition, and especially if it is opposed by part of the dairy industry.

Going back to why Parliament changed the Standing Orders, Parliament recognised that the select committee process is one of the most important protections for New Zealand against bad lawmaking. If you have a bill at a select committee for 6 months, you have the opportunity for submitters to properly get their heads around the issues. You have the opportunity for them to lobby other people who should be interested to get their committees to go through their monthly meeting and put a submission in, and you have the opportunity for them to lobby the media and to explain to the media why it is that there are fundamental flaws in legislation that is being proposed. That is why, if this Parliament uses its powers to override that normal protection that is to be found in the 6-month period to report back legislation once it goes to a select committee, this Parliament deems it so important that we should have a special debate on a motion to truncate the period—because we are undermining one of the very few protections we have in our country against bad law.

In terms of why it is important in respect of this specific piece of legislation, we are dealing with the exporter, essentially, of 25 percent of New Zealand’s exports. There are major flaws in the bill, which relate to—

Louise Upston: I raise a point of order, Mr Speaker. My understanding from the Standing Order you quoted before is that the member cannot talk about the principles of the bill.

Mr DEPUTY SPEAKER: I am not going to uphold the point of order. I think the member is inside what the Standing Order says—at this point. It is not a “get home free” card.

Hon DAVID PARKER: I am not going to repeat my first reading speech, but there are at least three large matters dealt with by this bill, all of which are contentious. The first relates to how milk should be priced from Fonterra to others. I have not had an opportunity to speak about that—

Mr DEPUTY SPEAKER: Now the member is—

Hon DAVID PARKER: I am not going to.

Mr DEPUTY SPEAKER: Order! The member is now getting outside that framework. I think he was doing very well till that point.

Hon DAVID PARKER: Thank you, Mr Deputy Speaker. The point I am trying to make is that this is a very complex piece of legislation that deals with 25 percent of New Zealand’s exports. There are lots of angles to this that need to be explored by both submitters and the select committee itself. I was evidencing the fact that in the first reading debate I got the chance to deal properly with only one of them. There are two other issues in this bill that are as significant, if not to me then to other people whose opposition to this bill is on different grounds from my own.

For Parliament to be asked to truncate the normal select committee process from 6 months to 3 months—to halve it—does no justice to the proper consideration of what is probably one of the most important economic decisions that will be taken by this House of Representatives in the next 3 years. As we have heard in the debate already, there are aspects of this bill that people think are of enormous effect to our largest exporter. To truncate the process from 6 months to 3 months is exactly why Parliament changed the Standing Orders to allow members of Parliament to highlight to the public and to the media what it is that Parliament is being asked to do.

We are being asked by National to truncate this from 6 months to 3 months, and the only justification we were given by Mr Guy as he moved the motion was that Fonterra wanted it by that date. Well, there is a national interest here that goes beyond Fonterra’s interest. We in Parliament are responsible for the future of the New Zealand economy. Yes, the interests of Fonterra are important. Yes, the interests of individual farmers are important. But there is a wider New Zealand interest that we in this Parliament are responsible for.

Mr Guy, I am completely unconvinced by your suggestion that because Fonterra wants this bill through by 1 June we should be putting aside normal processes when we know that halving that period of time means that those people who are opposed to this legislation will not have the normal period of time to campaign. They will not have the normal period of time to go and see their local MP, to go and see other farmers who might be concerned about it, to go and see the newspapers, and to get the issue up in the media.

Given that we have very few other protections in this country against bad law, I say that this Parliament should vote against this motion to truncate the period from 6 months to 3 months. We should stand for the proper protection of the New Zealand economy and the proper protection of New Zealanders, and we should have a full select committee process so that it can give the normal 6 weeks for advertising. Mr Deputy Speaker, you will be aware that normally 6 weeks is the time that is allowed for people who are submitting on legislation to have time to gather their thoughts and to consider the legislation.

This legislation was tabled in the House only in the last week. They will not understand the detail of it yet. They need 6 weeks of that 6-month period to actually say what they think about the legislation, and then they need to have sufficient time for those people whose submissions have been put in to actually come to the select committee to put their case, to say what is wrong, to say what should be changed, and to say what they agree with—to support it if they want to.

Then the select committee needs to have the time to get considered advice from the departmental officials as to what the right policy position is, and the various parties need the time to take that to their caucuses and have a discussion about the issues. In this time there should be background meetings between the different interest groups, and different caucuses happening—all these things take time. Then parliamentary counsel need proper time in order to go about their job of drafting amendments to the legislation, which will no doubt be necessary.

All of this takes time. That is why we normally allow 6 months for a select committee to properly do its work. For one of the most significant pieces of legislation on the economic front that will be passed this year, probably during the term of this Government, to have that process truncated from 6 months to 3 months is very poor practice.

What is it that the Government wants to push through, without proper scrutiny? Well, I suggest that it is indicative of the fact that there are provisions in this bill that are unwise. The longer this debate goes on in the media and in front of the select committee the more apparent it will become that the Government is at risk of making a serious mistake. The less time that we have as an Opposition to identify and to get through to the various people who are interested in these issues the detail of our concern, the more apparent it will be.

We do not have the benefit of ministries working 24 hours a day. We have to do these things ourselves, with the benefit of some advice at the select committee and perhaps some advice that we get from the Parliamentary Library and from other interest groups that come in to see us. If we have a truncated process, we do not have the time to actually properly draft the amendments that are needed to this legislation in order to protect the public interest that we in this Parliament are guardians of.

We are not here for the farmers alone. We are not here for Fonterra alone. We are here for the broad range of New Zealand interests, including, in this case, 25 percent of New Zealand’s exports, which go out from the dairy sector.

Hon TREVOR MALLARD (Labour—Hutt South) : I want to thank the speaker who has just preceded me, the Hon David Parker, because I think he has pointed out some of the constitutional issues that sit in behind the debate that we are about to have now. Probably of members in the House, I think John Banks and I are the only two who were here in 1986 when the expectation changed, so that all bills went to a select committee, rather than it being an exception. That was, I think, part of a set of reforms at the time that recognised the fact that we are a unicameral Parliament and that some of the checks and balances did not exist. There was a view that unless something was really urgent it should go to a select committee. At that stage I do not think we had a time limit. Basically, the bill went to the committee and the committee did its business. It generally, on average, took about 6 months, but there was not a requirement to send the bill back within that time.

Subsequent to that, in another set of reforms, we had an expectation or a requirement that the select committee reported back—I think it probably came in with MMP or a period subsequent to that—that the 6-month rule applied that if the committee had not dealt with the bill it would effectively stand referred back. Recently, I have been rereading the review of the Standing Orders, which the Speaker, and you, Mr Speaker Tisch, were both actively involved in. We did make a change. We made some things easier for the Government to do—like the extended sittings. We also put some restrictions on the Government, and one of the restrictions that we put on was that if a bill was going off to a select committee for a period under 4 months, then it would be a debatable motion. What we hoped, through doing the extended sittings and that sort of arrangement, was to reduce the amount of urgency and to have Parliament debating the things in the select committees and in the House that were important and that were really debatable.

I think it is fair to say that whatever one’s point of view, there is not much doubt that there are parts of this legislation that are debatable and will need a full and proper select committee examination. In a funny way, there is not a lot of politics in this. Without referring too much to the debate that has preceded this, I indicated that my view was certainly closer to that of the Minister who introduced the bill than to my colleague Damien O’Connor.

Hon Nathan Guy: Must have been a good caucus.

Hon TREVOR MALLARD: Well, no, we have different points of view. I would say that the chairman of the Primary Production Committee has a view closer to Damien O’Connor’s than mine. So I think it is fair to say that there are a range of views within this Parliament, and the select committee is an enormous opportunity to work through those views and to see whether we can get a compromise that has the wide support of the Parliament. I think it is agreed that by the end of this legislation if we do not get something that has—I will say with all due respect to my colleagues from the Greens—the agreement of at least the Labour Party and the National Party together, then we will have a period of instability in the dairy industry. That is something that none of us wants. It does not help with investment going forward, and it does not help with the things that I think are really important, and that is the acquisition of capital for innovation for the dairy industry, so some of the things that, frankly, we are half-cock developing at the moment can be properly funded, and we can take advantage of our leadership in the intellectual property area related to the dairy industry.

But to do it we have to move to a point of if not total consensus, then broad agreement across the sides of the Parliament for that. My view is that the best way of doing that is within the select committee. I do not want to say that it is undue influence on the part of Fonterra. I mean, Fonterra is an organisation that I know relatively well and have been involved with, as a member of Parliament, in its formation, but to suggest that Fonterra dictates the timetable of this Parliament, as the Minister who is currently in charge of the bill did in the beginning of this debate, I think is wrong. My view is that it is important for this Parliament to take its time to work out the appropriate legislation and not to have its timetable, or the details of the legislation, dictated by any outside body.

Now, I am sure Fonterra would not want its request to the Government to be characterised as dictatorial, but I think in the way that the member moved this motion he at least gave that impression. I think that does not behove him well, and it does not behove other Government members well.

I do not want to go into the principles of the bill, but there are issues within the bill that require different constituencies to have their say within the select committee. There is no doubt that around the farm-gate price-setting arrangements there will be a lot of debate amongst farmers. I hope that the select committee will want to work its way around the country, not from every village—and it might not even want to meet in Auckland—but sitting in dairy areas and getting the views of the local dairy farmers, like the dairy sections of Federated Farmers, and farmers more generally. I think there are some principles involved in this bill that are important as far as the farming industry, generally going forward, is concerned.

But what I am saying is that for that to happen you need to have a proper period of notice to the select committee—normally 6 weeks—for things to appear in the paper. I think we are just about at the point now where the Office of the Clerk is prepared to support electronic advertising, like getting on farmers’ Facebook pages, and various arrangements like that. Then we can encourage them to make submissions and, as farmers like to do, to turn up and make those submissions in person, possibly at carefully arranged times. In fact, it would probably fit fairly well in a number of areas for the select committee to fly in. Farmers could come in after morning milking, although if we are looking at the period now there might be a few cows that are dry. Are they drying off now?

Hon Member: In some areas.

Hon TREVOR MALLARD: In some areas they are beginning to dry off, and they might be on once-a-day milking in some areas. But what I am saying, Mr Assistant Speaker, and you will be much more cognisant of this than I am, being the member for a rural area, is that the farmers will want to come in and they will want to have their say.

One of the anxieties that some of us have about the bill is that many of the people who are going to benefit from this are not New Zealand residents. It is one of the debating points for the bill, and one of the questions I have is whether there is any plan for the select committee, for example, to sit in Shanghai. Clearly, there is international interest in the ownership of this area. I see the wry smile from Maurice Williamson at the moment, and the importance of whether or not the Primary Production Committee should meet in Shanghai could well be influenced by decisions that are before him at the moment. Certainly, by the time the committee advertises and has its hearings, then those things will be announced—probably Thursday afternoon at 4.30 would, I think, be my best estimate. But the point I am making is that people who own New Zealand farms and live in Shanghai, people who have an interest in the New York Stock Exchange, where the units could well be listed, and people in London and New York could well have an interest in making submissions to the select committee. It may be that these will be done by videoconference, but then people will not be familiar with our way of doing things in New Zealand at select committees. In fact, neither London nor New York has a unicameral system, nor do the Europeans. People who might be interested in doing the investment will be interested in going to the select committee. That is why I think 6 months is a minimum. I, in fact, think that to get this right it would be better to take longer. We will be opposing this motion from Nathan Guy.

EUGENIE SAGE (Green) : The Green Party will be opposing the reduction in time for this bill, the Dairy Industry Restructuring Amendment Bill, because we all know that haste is the enemy of good law. From my short time in this House I know that select committees are the engine room of Parliament. They are the opportunity for the variety of perspectives from the public to be heard, for people to put forward suggestions to amend the legislation and the reasons why it needs to be changed, and for members to consider those, to seek more information on the bill, and to seek a good briefing on the bill from officials. This legislation is very complex. It affects a significant portion of our economy, as previous members have noted, and truncating the time it is before the Primary Production Committee will truncate the opportunity for the public to have its say and to be involved.

At the last election we had a decline in the number of people casting their vote. For people to have faith in this Parliament, for people to have faith in democracy, they must be able to have their say. They must be able to put their views clearly and know that they are well considered by members.

Truncating the select committee process will reduce the opportunity for the committee to travel around New Zealand. It will reduce the time in which the submitters are able to present their views, and we know that farmers do tend to get actively engaged in any regulation and will be very interested in this bill. So it is bad law to significantly reduce the time that the select committee and the House have to consider the bill because Fonterra is asking for that. It reduces the confidence that people have in our democracy if we do not allow people a good opportunity to have their say. There are a number of complexities in the bill that merit further consideration, detailed consideration, by members at the select committee and by members of the public.

Haste is always the enemy of good law. The Green Party will be voting against this truncation so that we can end up with a bill that is substantially improved from the one that has been introduced. Thank you.

RICHARD PROSSER (NZ First) : I agree with the sentiments of the last three speakers, particularly the two extremely erudite speakers from the Labour benches. I do not intend to keep the House anywhere as long as those fine gentlemen, other than to say that New Zealand First does oppose the truncation of this process, and for the same reasons. In order for participative democracy to be effective, it has to be participative and there has to be sufficient time for that process to be gone through.

It is all very well saying that this period has been cut back from 6 months to 3 months. In real terms it has been cut back to 1 month. This House has an adjournment for most of the rest of this month. Then we have only May for anybody who wishes to make submissions to the Primary Production Committee and appear at hearings before the committee. Plainly, that is not going to allow for a range, a cross-section, of opinions and ideas, or for the practicalities for people to organise such things.

I think it behoves us as a Parliament to pay more than lip-service to the process of democracy, and, frankly, given the contentious nature of this bill, and given the vital importance of it to the economy, to the industry—and to that industry as part of the economy—I think that truncating the period for submissions to the select committee would be a dereliction of duty on the part of this House. Thank you.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : In the trustworthy stakes, politicians battle for credibility and acknowledgment by the public, who too often do no trust what we do or how we do it.

Hon Maurice Williamson: No, that’s outrageous!

Hon DAMIEN O’CONNOR: I am the last person—probably that Minister in particular—and my colleagues would back this up, who advocates for process.

Hon Trevor Mallard: That’s true.

Hon DAMIEN O’CONNOR: There you are. But I have to say that that is all we have here in this Parliament to ensure fairness and openness, to protect us from corruption, and to protect us from undue influence. I have to say that I was very concerned when the Minister started to explain why this is a truncated process for what is, as my colleagues say, one of the most important pieces of legislation this economy has seen for some time, the Dairy Industry Restructuring Amendment Bill. If there was ever a suspicion about what is happening in this legislation, then the fact that this process has been truncated—shortened—will add suspicion to the minds of the growing number of farmers out there who are wondering what this bill will do.

One of the issues we have raised, of course, is that a lot of the detail is unclear. This is enabling legislation, so it lays on the table, when passed, an ability for a cooperative, for Fonterra—the biggest company—to proceed with a process basically beyond the control of Parliament. The entity was set up by virtue of legislation because of issues that were raised by my colleagues in the previous debate. It is very important that when we deal with this entity—when we deal with the legislation around it—we do this in a proper way. It is outrageous that Fonterra should be able to say to the Minister, and that he should say to the House, that we have to rush this through because we have to meet this deadline, as though there were some constitutional dilemma. Well, there is not. In fact, there is still a question over whether anything will proceed from the legislation if, indeed, it is enabling, as we are told.

The Primary Production Committee has a huge task to analyse the bill to see whether it is enabling or whether it is, in fact, a bullying piece of legislation—threatening—and the chair of the select committee acknowledges that. I know we are the most efficient select committee in the House. I know that. In fact, we do not have too many political debates. But I have to say that we are going to grapple with this piece of legislation, given the unknowns around it. The Government has come into this House after there has been much debate about which select committee the bill goes to—and we know that for a fact—and finally the decision, because of some argy-bargy within the National Party, is that it had better send it to the Primary Production Committee. Then it insults the committee and says that we are not allowed to have the time to consider this properly. That is the committee, and we work here! But what about the submitters? What about the 10,500 shareholders of this company, which wants to make major constitutional change through the enabling legislation that the select committee will hear?

We are told that we have to do that in a shorter time frame. Well, why? June the 1st just happens to coincide with the start of the new dairy season. In fact, if you are down in the good island—the South Island—most will be milking until the end of May. So the farmers are not going to be able to physically get to Parliament to submit. A suggestion of my colleague is that we should hop on a bus, or hop on a plane, and go around the country. That may, in fact, be the best thing to do. But I would suggest that those with suspicious minds will say that this is being rushed through in the hope that very few farmers will be able to make submissions. The objective is actually to reduce the opportunity to have input into the bill, because the ability to debate it in the lead-up to Parliament has been very limited. The constant criticism has been that there has not been detail on the table for farmers to consider. In fact, the Fonterra Shareholders’ Council—arguably the most important body to make a submission on this bill—has said it cannot support the bill in its current form. So I am guessing it will have a substantive submission. We will have to chew that over, and we are now told that we will have to do that in a shorter time frame.

I hope that all the farmers, all the dairy industry people observing out there—not the investment community, but the dairy farmers—are aware now of what is happening in Parliament through a sweet-heart deal between the National Government and the Fonterra board. That is the only way, and the only reason, that it is being rushed through. Fonterra has said it needs to have this rushed through and the National Government has said that that is fine by it.

What do the farmers say? What do the growing number of concerned New Zealanders say—those people who understand, support the cooperative, support the current structure, and are very, very wary of what is being proposed in this bill? They look offshore, and I am sure that for legislation—be it in Ireland, be it in Denmark, be it in Holland—where there has been demutualisation of cooperatives in the dairy industry, those people probably, I hope, had a reasonable time to submit. But even there, with careful consideration, although I am not aware of what they were intending, farmers—shareholders in that company—have lost control of their entity.

We have wonderful words from the Minister for Primary Industries and other people in National that they want to keep things intact. It will be a tricky process to get the right wording in the legislation, because it will come down to open trading or closed trading of shares. Untradable or tradable—two letters. All of those details—and we know the devil is in the detail—will be assessed by the committee.

Here is another question I have. Whom will the select committee decide to have as advisers on this? I am guessing it will take us a wee while to decide that, and then to contact the people with appropriate skills to come and provide us with objective, unbiased advice. Can I flag here and now that I will be very wary of anyone from the Ministry of Agriculture and Forestry coming in, given the advice I have read from it. I say that with sadness—

Hon Trevor Mallard: Can I just add a point? They’re about the worst drafters in the Public Service, and they tend to take their time.

Hon DAMIEN O’CONNOR: I take that advice with sadness, that they are the worst drafters, and now that the ministry has the Ministry of Fisheries in there, I would have to say that if you look at the history of the fisheries legislation, it has just got a hell of a lot worse.

The ASSISTANT SPEAKER (Lindsay Tisch): Order!

Hon DAMIEN O’CONNOR: Bringing it back, we are going to have to double- and triple-check every single word in this legislation, because if we leave the door open for demutualisation, for inappropriate investment and inappropriate pressure, then we will lose control of the dairy industry. This is what the bill is about here.

I have concerns in a whole lot of areas, and the fact that this is being pushed and rushed through by the board of Fonterra and by the National Government is alarming. I hope every dairy farmer up and down this country who voted for National gets that message very clearly. I hope they go and knock on the door—there will be a short time frame, but there will be time enough between milkings to get in their cars and go into town and hammer on the door—of the National politicians. That is why—

Hon John Banks: Very narrow.

Hon DAMIEN O’CONNOR: It is, yes; it is a very narrow door, I know. In fact, they go through it sideways, with one eye on it. Mr Banks, they will find your door as well. The process of the select committee is going to be so short, and the opportunity for all of those people to make submissions has been shortened, so you will probably have a rush in a few weeks of people banging on the door, coming in with their gumboots, which is what they should do.

In summary, this shortened, truncated process—

The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member. His time has expired.

Hon DAVID CUNLIFFE (Labour—New Lynn) : I would like to acknowledge the Hon Damien O’Connor in his leadership on this issue amongst the Labour caucus, and I would like to take a call to express my deep disappointment in the process that the House is right now debating. I note that the Government sees fit to override the normal provisions of the Standing Orders in order to rush this crucial legislation, the Dairy Industry Restructuring Amendment Bill, through the parliamentary process, but that it is not important enough for National MPs to take calls. Is that not extraordinary? I hope the public at home are noting this feature.

I want to begin with a little homily on a closely related—as you will see—matter, although in a different industry. In my first term as a backbencher I sat on the Finance and Expenditure Committee, and a private bill came before the committee to demutualise the New Zealand Stock Exchange.

The ASSISTANT SPEAKER (Lindsay Tisch): Order! This is a very narrow debate, and it is all to do with the report-back time, which has been reduced. The member must relate to that.

Hon DAVID CUNLIFFE: I apologise if I did not make the linkage clear. The stock market demutualisation bill had a short report-back time, and, rather like this bill, it was put to the select committee before there was a clear regulatory structure around the demutualisation. On that occasion, I felt so strongly about it that I led a backbench revolt against our own Minister—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! This is a very narrow debate. I refer the member to Standing Order 286(3). We are discussing those points. The instruction that we are debating here is that the bill be reported by the select committee in 4 months or less. You cannot go and get involved in anything else. If the member does not bring it back, I will terminate the speech.

Hon DAVID CUNLIFFE: I raise a point of order, Mr Speaker. I am, by analogy, going precisely to the issue of the report-back time.

The ASSISTANT SPEAKER (Lindsay Tisch): The member has been speaking for 3 minutes and has not come back to the point that I have made. The member must come back now to what this debate is about. It is a very narrow debate, and it is to do with the instruction that the select committee report in 4 months or less. That is what we are debating. That is what the instruction is.

Hon DAVID CUNLIFFE: The point is this. If it was good enough for us to hold up a bill to prevent an undue truncation of the consideration and to guarantee a proper regulatory framework, I appeal to members of the National caucus to exercise their conscience and good judgment and do the same with this bill. I appeal to members opposite to stand up, to defy the whip, and to stand up for future generations of New Zealanders—

Hon John Banks: I raise a point of order, Mr Speaker. I think this speaker should be wound up. Standing Order 286(3) is clear. It has nothing to do with National members sitting in the House, listening to this debate. It is very tight, it is very narrow—it is probably the narrowest, tightest procedural debate that we will ever have in this Parliament—and he has not come back to the point.

The ASSISTANT SPEAKER (Lindsay Tisch): I thank the member, and this will be the last time that I will ask the member to talk specifically on the instruction and the limited provision that it is. Otherwise I will terminate the debate.

Hon DAVID CUNLIFFE: The following are some of the reasons why this House may wish to refuse to grant the motion that is before it. Those reasons, with your conscience—those matters are as follows: firstly, the importance of Fonterra as the earner of one dollar in five of New Zealand’s export income. Of its status—

The ASSISTANT SPEAKER (Lindsay Tisch): Come back to the debate.

Hon DAVID CUNLIFFE: I raise a point of order, Mr Speaker. I seek your guidance.

The ASSISTANT SPEAKER (Lindsay Tisch): I have given my guidance very clearly. We cannot talk about Fonterra, its principles, or its objects. This is the last time. If the member deviates from what I have already ruled on, that is it.

Hon DAVID CUNLIFFE: I raise a point of order, Mr Speaker. I am in no way seeking to trifle with your ruling, which I accept and partially understand, but I do seek your guidance. I seek your guidance because I am unclear how a member can address themselves to the grounds of this motion, which is to truncate the normal select committee timetable for this bill around the structure of Fonterra—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! I have heard the member. If the member had been here earlier or had been listening to previous debate, there were some very good speeches specifically on the subject and they were very well received. This is the last warning to the member. The member must come back to the instruction—that is, the report-back time is 4 months or less.

Hon DAVID CUNLIFFE: The report-back time is too short. The report-back time is too short. The report-back time is too short. The report-back time is too short. The report-back time is too short.

The ASSISTANT SPEAKER (Lindsay Tisch): Order! The member is trifling with the Chair. The debate is terminated.

GRANT ROBERTSON (Deputy Leader—Labour) : When we think about why—

Louise Upston: I raise a point of order, Mr Speaker. My recollection was that you would terminate the debate.

The ASSISTANT SPEAKER (Lindsay Tisch): No, I would terminate his speech, and I have done that.

GRANT ROBERTSON: There has been a history in this House, prior to the last 10 years, where there was an unlimited time for consideration by select committees of bills. Clearly that could see bills languish for a significant period of time in a select committee, without any particular time line or process for them to come back to Parliament. Then about 10 years ago, I am informed by colleagues, the practice around a 6-month time line was instituted. This is a pragmatic balance between getting bills through and also giving the public and parliamentarians time to look at them. We all know that the standard period of consultation for public submissions is around 6 weeks. That is a reasonable length of time. There are occasions when holiday periods appear, and that causes some difficulty within that period of time. But a 6-week period for public submissions to be gathered is regarded as normal practice. So that sets the bare minimum time that is in fact, from my perspective, acceptable for most pieces of legislation. To have this instruction, for there to be only less than 4 months’ scrutiny for a bill, means that having got what I suspect on this particular bill, the Dairy Industry Restructuring Amendment Bill, will be a large number of submissions in a 6-week period, the committee will then be heavily restricted in the way that it can address those submissions. We have seen on other bills where there is restricted periods of time for the committee to consider those bills, we have seen people reduced to 5 or 10 minutes when they are making a submission on what can be complex legislation. So a 6-month period of time, the normal period of time for a piece of legislation, gives the committee the ability to both hear from the public and take the advice that they need from the officials, who are around them, on complex matters. That means often a to-ing and fro-ing about that advice, and restricting, as the motion does, to 4 months or less, actually will limit the ability of the committee to properly consider the public submissions, properly consider the advice that they are getting from their officials, and in the end it does Parliament no service to have a situation where on a complex and important matter a restricted time frame like this is provided. There may be good reason for, from time to time, truncated select committee processes. But we should move very warily into that—

Hon Trevor Mallard: None has been provided.

GRANT ROBERTSON: —as my colleague Mr Mallard says, none has been provided to us in this debate—where we find a good and constructive reason that across the House we can agree would support such as a motion as this, to restrict it to 4 months or less. So from my point of view, the standard process, the idea that we have a 6-month period, is one that should be protected where possible. It is in part to protect the rights of the public to be heard properly, and there will be significant submissions on this bill, as there are on most bills of this nature. By truncating it to less than 4 months, I fear we will be doing a disservice not only to ourselves and Parliament, but to the industries that are covered by this bill and to the people who will want to make submissions on this bill.

If the Government wants to put motions like this, as it did last week, and as it is doing this week, it has to provide good reason, because on this side of the House we will stand up for a process that has history, that is robust enough and long enough for the public to have their say, and is robust enough and long enough for parliamentarians to do their job properly, in a select committee, of analysing submissions, analysing evidence, analysing advice, and then reporting back to this House a bill that is the kind of legislation New Zealanders would expect us to pass.

We know from experience that that takes, for most bills of this type, 6 months. It is not less than 4 months. I find the phrasing “less than 4 months” interesting. It is a minimalistic view of the fact that hopefully it might be 2 months, or it might be 1 month. The reality is that if we keep it, where possible, to 6 months, committees will work in short order when they know that there is an important issue in place. But by setting an arbitrary time, like less than 4 months, I believe the Government is doing a disservice to this piece of legislation and a disservice to Parliament. I think it is very important that we have debates like this to let the Government know that if it is going to step outside of normal practice, it must provide good reasons for doing so. I think in this case the Government has failed that test. By simply arbitrarily saying “less than 4 months” it is clearly setting up a process here that will limit public submission and that will limit the ability of parliamentarians to give scrutiny to the legislation, which is the heart of the select committee process.

I have been a member in this Parliament as an Opposition member only, and I can say that in those select committee processes where they go the full 6-month period of time, or at least have that capacity to go that period of time, we make better law. That is what I have observed—that we make better law when we allow the select committee process to take its course. We do not set arbitrary limits, particularly around legislation where there is a significant amount of public interest, where there is a significant amount of submissions, and where there are complex matters that will require advice from officials and indeed perhaps from beyond officialdom in the case of this piece of legislation.

I will not take much more time, but I do think it is important to note that this is not a frivolous debate. This is a serious debate about whether or not Parliament should step outside of its normal processes—processes that have been developed over a number of years to ensure the public have their say, and to ensure that parliamentarians perform the role that the public expect of us. If we are being expected in this House to deviate from that, we need good reasons. We have not been provided with those good reasons. We will debate these motions out, because the Government cannot just ride roughshod over the practices of this Parliament.

LOUISE UPSTON (Junior Whip—National) : I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 64 New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.
Noes 54 New Zealand Labour 34; Green Party 11; New Zealand First 8; Mana 1.
Motion agreed to.

A party vote was called for on the question, That the Primary Production Committee report finally to the House on or before 1 June 2012.

Ayes 64 New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.
Noes 54 New Zealand Labour 34; Green Party 11; New Zealand First 8; Mana 1.
Motion agreed to.