Govt tightens Fonterra raw milk rules

Changes tightening the rules over how much raw milk dairy giant Fonterra is obliged to sell to smaller independent competitors have been announced by the Government.

The changes to the Raw Milk Regulations, the rules by which independent milk processors can access raw milk from Fonterra, follow a major review by the Primary Industries Ministry and are largely what the $12 billion industry expected.

The key amendments include the introduction of a three season time limit under which large independent processors with their own milk supply from farmers can call on Fonterra to sell them regulated milk; the total quantity of milk available from Fonterra being set at around 5 per cent of its total milk supply; and a range of maximum quantities processors can order from Fonterra at different months of the season, to reflect the seasonal demands of milk production.

Another key change is that processors which do not take much, or any, milk directly from farmers will be able to pay a fixed price for regulated milk and not be subject to a ''wash up'' price at the end of the season.

The new regulations take effect from June 1 next year.

Fonterra controls nearly 90 per cent of the country's raw milk supply. It is obliged under the Dairy Industry Restructuring Act, which enabled its creation from a huge industry merger in 2001, to provide other processors with an annual percentage of its total milk at a regulated price.

Fonterra has welcomed the changes.The farmer-owned cooperative said the amendments addressed most of its concerns about rivals' eligibility to access regulated milk.

Chairman-elect John Wilson said the regulations had needed an overhaul for the good of the dairy sector and New Zealand.

Fonterra was particularly pleased the new regulations required independent processors to take at least some milk during peak season production, under what is known in the industry as the ''October rule''.

This addressed Fonterra's issue with independents ordering milk on the ''shoulders'' or non-peak milk supply parts of the season when the big cooperative itself needed all the milk it could get to fulfil its own market requirements.

The Government's July amendment to the Dairy Industry Restructuring Act had clarified another Fonterra concern - who could claim to be an independent processor under the regulations.

Wilson said this amendment was aimed at eliminating gaming of the regulations by ''virtual'' processors or shell companies.

Waikato dairy farmer cooperative Tatua, which has its own milk supply but has been buying regulated milk, shrugged off the three season limit.

Chief executive Paul McGilvary said the company had lobbied for a longer weaning off period, but was confident by 2016 when its access ceased, its drive to  grow returns from its value-added business meant they would have surpassed any returns gained from buying regulated price milk.

And if the company needed extra milk it would simply go to the market for it, which is what the Government was trying to encourage, McGilvary said.