Review of the Dairy Industry Restructuring (Raw Milk) Regulations: Options for addressing industry concerns April 2008
Introduction
Purpose of the second consultation document
As outlined in the Review of the Dairy Industry Restructuring (Raw Milk) Regulations: Clarifying Industry Concerns and the Regulations’ Intent (MAF 2007), the Review is in two stages:
- Stage one was to clarify the intent of the Regulations and canvas the full range of industry concerns about the current operation of the Regulations.
- Stage two will outline options and seek feedback on these options. This is the purpose of this document.
Review principles
As per the first consultation document, the following principles will continue to apply to the Review.
- The “open entry and exit” regime in the Dairy Industry Restructuring Act 2001 (the DIRA) is the primary means for promoting a competitive market for raw milk. The Raw Milk Regulations need to be considered in this context.
- Milk that is required to be made available under the Raw Milk Regulations should be made available at a fair and efficient price.
- The Regulations should promote competition at the farm gate for raw milk by encouraging independent processors to source milk on standard commercial terms directly from farmers.
In addition to these principles, it is useful to have a broad understanding of likely future industry drivers, as these provide the context that any revised regime must function in.
One driver is innovation. The Government is committed to promoting an innovative and vibrant pastoral and food sector and is supporting this with substantial public investment through the New Zealand Fast Forward initiative.
A second, and complementary, driver is milk supply. Unlike many other established dairying countries, New Zealand is forecast to continue to have increasing milk production, which has the potential to become a feed stock for a range of exciting new uses and users.
A third driver is managing transition. The competition measures in the DIRA, including the Raw Milk Regulations, are only intended to remain until a sufficient level of competition is re-created. Once these triggers2 are met the requirement on Fonterra to supply milk at a regulated price ceases.
While it is difficult to predict, current and planned investments suggest that the triggers could be met as early as 2013, and potentially sooner.3
In such a dynamic and rapidly changing environment it is critical that the firms that have the highest resource use for milk are able to access it in adequate quantities, and that the regulatory system supports this.
2 The South Island trigger is in two parts: Total milk collected by independent processors must be at least 65 million kgMS (780 litres at an average conversion rate of 12 [NB: conversion rates range from 11.61–13.08, hence 12 is used to provide an estimate); and at least one independent processor outside of the borders of the Westland Regional Council must collect at least 25 million kgMS (300 million litres at an average conversion rate of 12). The North Island trigger is that independent processors must collect 12.5 percent of the total North Island milk supply.
3 It is entirely possible that the South Island trigger could be met during the 2008/09 dairy season, which means the growth of independent milk supplies in the North Island will determine when the overall regime expires. Based on the 2006/07 season, 12.5 percent of total supply is approximately 1.25 billion litres (at an average conversion rate of 12). Independent capacity in 2006/07 is approximately 400 million litres. The one powder plant under construction adds [at least] another 200 million litres of capacity with three additional plants planned and constructed on a year-on-year basis (therefore adding [at least] another 600 million litres). This results in 1.2 billion litres of independent capacity by 2013. Obviously, if plant building is sped up, or larger plants are built, or another firm enters the North Island, or the supply of liquid and fresh product supplies are diversified, or the North Island experiences ongoing climate shocks then this estimate may prove optimistic and the expiry date could be sooner.
Contact for Enquiries
Principal Advisor
MAF Policy
Sector Performance Policy
Ph: 04 894 0128
Fax: 04 894 0745
Contact this person
