Fonterra Seeks Radical Revamp of Rules it Operates Under

Mar 07, 2019
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Fonterra’s comments have come in submissions to the biggest structural change in the dairy industry for almost two decades.

At stake are a range of state-enforced constraints that were imposed on Fonterra when it was set up at the start of the century. They were intended to stop the company from exploiting its market dominance to suit its own advantage.

In its submission to this reform process, Fonterra said dairy exports had tripled and competing companies had multiplied in the years since it began, meaning the anti-market-dominance rules imposed on it were no longer needed.

One of these rules compelled Fonterra to buy milk from any farmer who wanted to sell it. This rule was known as the Open Entry provision.

Although there were limited opt-out opportunities, the rule meant Fonterra had to invest in expensive infrastructure for bulk storage of milk that it did not always want.

It was also distracted from investing in targeted, value-added product.

Fonterra also had to buy from farmers whose environmental standards fell short of what it wanted. The company said this compulsion-to-buy should be scrapped, as a first preference, but reduced in scale as a second option.

Under this alternative, it might still apply in cases where Fonterra had 75 percent of the market.
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Fonterra is seeking a change to a rule requiring it to sell milk at cost to its rivals. Photo: 123rf.com

The company also disliked having to sell milk at cost to large export-focused dairy companies that compete with it on the world market.

It also wanted oversight of its milk price by the Commerce Commission to apply to other milk companies.

“Efficiency and informed decision-making by farmers would be improved if the transparency of price setting and payments was spread throughout the industry,” Fonterra said.

“Our co-operative has created a transparent milk price calculation that is the envy of farmers the world over.”

Fonterra added that the system had raised incomes for dairy farmers, who spent half of what they earned in their local communities .

It had achieved its goals, but many of its provisions were now past their use-by date.

The deadline for submissions has passed and a final report and subsequent legislation are both expected this year.

Source: radionz.co.nz re published by arrangement

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