Fonterra gets the raw deal it wanted

Dairy giant welcomes milk reforms but says they could have gone further, writes Andrea Fox . 

Long-awaited changes tightening the rules over when and how much raw milk dairy giant Fonterra must sell to independent competitors have been announced by the Government.

The changes to the Raw Milk Regulations follow a major review by the Primary Industries Ministry and are largely what the $12 billion industry expected.

But Federated Farmers said it had hoped the Government would have done more to drive independents direct to farmers for their milk instead of to Fonterra.

The federation was also unhappy that the amount of milk in the bucket Fonterra is obliged to offer has been hefted by 195 million litres for next season to 795 million litres.

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. The Dairy Industry Restructuring Act requires it 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.

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 act had clarified another Fonterra concern, on who was defined as an independent processor. 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 that by 2016, when its access ceased, its returns from its value-added business would surpass any returns from buying regulated price milk.

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

Federated Farmers dairy chairman Willy Leferink said the regulations would give independents certainty and time to talk to farmers about supplying them. But the federation was disappointed a time limit for supply was not imposed on all independents.