Recent History and State of Play
29. The Government announced in the May 1998 Budget that it considered it inevitable that Producer Boards would have to operate without specific legislative protections. Dairy industry leaders approached the Government in May 1999 requesting that it pass legislation to facilitate the implementation of a merger of the Dairy Board with all its shareholding co-operatives.
Issues
30. Any significant changes to the Board’s structure and practices required the industry to approach the Government to discuss:
· competition issues, particularly the ability of competitors to enter the markets to buy raw milk in New Zealand and to sell dairy products within New Zealand. The Government agreed with the industry that implementation of the mega-merger legislation would be dependent on removal of the single desk and approval by both farmers and the Commerce Commission (under existing competition law); and
· other policy issues, including access to foreign quota markets, tax issues, access to Livestock Improvement Corporation data and shifting regulatory powers from the Board to the Government.
31. These agreements were then reflected in the Dairy Industry Restructuring Act (DIRA) and a statement of Government policy provided to the Commerce Commission under section 26 of the Commerce Act.
Commerce Commission
32. In October 1999, the Commerce Commission provisionally declined the industry’s initial proposal in a preliminary assessment using the “public benefit test” that considers the benefits to the public of a merger against the competitive detriments. The Commerce Commission expressed a preliminary view that while there may be benefits from the merger, the detriments arising from the merger (in terms of allocative, productive and dynamic efficiency) were likely to be much greater.
33. The industry is now developing a revised proposal. The DIRA remains available as long as the merger is approved by farmers and the Commerce Commission and becomes effective before 1 September 2000.
34. Authorisation by the Commission would be likely to require guarantees to remove or substantially reduce barriers to entry to the dairy industry in a way that could not be achieved within the industry’s original proposal.
Waitangi Tribunal Claim – Wai 790
35. A claim has been lodged with the Waitangi Tribunal by PKW (Parininihi ki Waitotara Incorporation) subsequent to the legislation. The claim relates to any impact that unbundling (i.e. separating out the payments for milk from the return on farmers’ off-farm investments) might have on the unimproved value of Maori reserved land and any interaction between that impact and the Crown’s obligations regarding the land.
36. There has been some debate as to whether unbundling was a consequence of Crown action, or was an industry process that was already underway.
37. The Waitangi Tribunal issued directions in September 1999 indicating that it will sit in urgency if the Crown and the claimants do not constructively meet and discuss the issues. To the extent the claimants do not consider the Crown is taking appropriate action in discussing the merits of its claim, the issue is likely to revert to the Tribunal early next year. In the meantime, officials and the claimants have outlined a process for information sharing that is likely to require Ministerial endorsement by the end of January. Officials will report separately on progress in this matter.
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