28,500 copies distributed monthly – to every rural mailbox in Canterbury and the West Coast.
April 2012
INSIDE Fonterra – Government Page 5
The Canterbury dog trial season — thus far Page 21
Abundant Choices
Page 24
End of Season Blues
CONTACT US Canterbury Farming 03 347 2314
on collision course
by Hugh de Lacy
A little over a decade after the dairy industry faced down a National Government and formed the co-operative company Fonterra, another stoush is looming with another National-led administration. Intensely sensitive to any threat to its rigidly producercontrolled capital structure, the Fonterra Shareholders Council is gearing up to fight the Government over the Dairy Industry Restructuring Bill (DIRA). The Bill was introduced to Parliament earlier this month by Agriculture Minister David Carter, immediately copping a broadside from the shareholders council that took even the chief executive of the company, Theo Speirings, by surprise. The Bill contains three major provisions: Trading Among Farmers (TAF) to create a sharemarket in which the co-op’s members can trade its shares exclusively among themselves, thereby preventing the damaging annual swings of large amounts of capital as farmers buy in and sell out the company’s shares as they begin or cease producing milk; Transparency in the company’s farm-gate milk price-setting mechanism, presently contained in a manual which will be enshrined in the law; Reform of milk regulations
to allow the Commerce Commission to monitor and enforce them. Parliament has given the Bill a first reading and sent it on to the Primary Industry Select Committee, which will receive submissions on it until April 24, then conduct hearing starting in the week of April 30. In language whose strength surprised observers, the Shareholders Council warned the company’s 10,500 supplier members that the Bill’s TAP and milk price-setting regime contained a ‘hidden’ threat of ‘disintegrating’ the country’s largest company, the earner of about a quarter of New Zealand’s overseas income. Speirings was reported as saying the shareholders’ statement came as ‘a bit of a surprise’ but he didn’t think it would have a serious impact on ‘the total construct’ of the Bill. He added a plea to the council to keep its misgivings in-house until they could be sorted out. The council’s reaction to the Bill seems to reflect a deepseated fear that the Government is trying to prise the company open to wider ownership, with domestic and global capital markets being allowed a slice. The suspicion that National is anti-co-op has lingered since former chairman Sir Dryden Spring had to bluntly tell the then National government in 1999
that it was going ahead with the merger of two dominant co-ops to form Fonterra, whether the Government liked it or not. Fonterra was accordingly formed in 2001 with only two small co-ops staying independent. To create an element of competition in an industry otherwise 98% owned by Fonterra, the Government insisted it be required to supply milk at its farm-gate price to potential competitors. Since then Fonterra’s share of the industry has slipped to just below 90% with the emergence of private companies like Canterbury’s Synlait. But last year a new element arose with public protests about the price supermarkets are charging for milk — roughly four times what Fonterra pays its producers. Agriculture Minister David Carter has defended the Bill, telling Canterbury Farming that transparency around Fonterra’s price-setting mechanism is “absolutely paramount” because “the price that Fonterra sets effectively becomes the price that all other processors must match. “There had to be some protection to ensure that Fonterra didn’t manipulate its dominance to drive other players out of business.” Carter conceded that inquiries by the Ministry of
Agriculture, the Ministry of Economic Development and Treasury had concluded that Fonterra had not exploited its dominance, but without DIRA the capacity remained for it to do so. “The new legislation is going to enshrine the milk price manual that Fonterra uses today, and also has the sanitising effect of the Commerce Commission looking at Fonterra’s milk price every year,” Carter said. He strongly denied that DIRA was a response to public anger over supermarket milk pricing, but said the pricesetting transparency would ensure that consumers knew how much the supermarkets were marking milk up. That would encourage competition at the retail level, something that was already expressing itself in Auckland boutique supermarket Nosh offering milk at $2.49 a litre, 50c cheaper than the two big supermarket chains, Carter said. Since Speirings’ public comments, the Fonterra Shareholders Council has gone to ground, with chairman
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Simon Couper not returning Canterbury Farming’s calls. But Federated Farmers Dairy Section chairman Willie Leferink of Mid-Canterbury said the Feds’ views largely coincided with the council’s, and “what worries me is the depleting in the shareholder base.” Though the overview of the price-setting mechanism by the Commerce Commission might mean government agencies in effect imposing a milk price on Fonterra that subsidised its competitors, that was of less concern than what would happen if the Trading Among Farmers system was rejected by the capital markets, Leferink said. That could open the door to outside investment in the company. In that case, “The problem [would be] that all of a sudden you’re going to have to service two parties — one party plainly after dividend, and the other that’s only going to be satisfied by the milk price and the dividend,” Leferink said.