Review of the Dairy Industry Restructuring (Raw Milk) Regulations: Clarifying industry concerns and the Regulations’ intent
The Regulations and the empowering legislation
The Dairy Industry Restructuring Act 2001 (the empowering Act) provides for the Government to regulate up to 5 percent of Fonterra’s total milk supply. Based on the 2006/07 season, this represents almost 750 million litres.
The Raw Milk Regulations require Fonterra to supply up to 400 million litres of raw milk per annum to independent processors. Of this volume, Fonterra must supply:
• up to 250 million litres to New Zealand Dairy Foods (now Goodman Fielder New Zealand); and
• up to 50 million litres to any other independent dairy processor.
A recent amendment to the Regulations put in place interim changes, so that Fonterra must supply up to 500 million litres at the regulated price in the 2007/08 season, and up to 600 million litres at the regulated price in the 2008/09 season. In the absence of any further changes to the Regulations, the volume cap would return to 400 million litres in 2009/10.
Under the Regulations, processors may privately agree with Fonterra to a price for the supply of this milk, but in the absence of such an agreement, processors may request that Fonterra supplies the milk at the regulated price (also called the default price). This price is determined annually through a formula contained in the Regulations (see Appendix A).
Regulatory objectives
The Regulations were developed in 2001. They aimed to:
• protect the position of those companies that previously bought raw milk from either Kiwi Cooperative or New Zealand Dairy Group (which merged to form Fonterra in 2001);
• protect domestic consumers (through providing raw milk to processors for the domestic market, such as New Zealand Dairy Foods, now Goodman Fielder New Zealand); and
• provide an entry pathway for new players into the milk processing industry.
The first of these objectives might possibly be reframed now as “provide for the reasonable expectations of those who currently buy milk from Fonterra”.
The relevant purposes and intentions of the DIRA are also relevant and are outlined in Appendix B.
We would like to know:
• Do the objectives summarised above fit with your understanding of the Regulations’ intent? If not, how does your understanding differ?
• Do you think the Regulations should address other or different objectives? If so, what are they?
• Which regulatory objectives do you consider is/are most important? Why?
Contact for Enquiries
Policy Analyst
MAF Policy
Sector Performance Policy
Ph: 04 894 0580
Fax: 04 894 0745
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