Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Parliament has passed a law change so that the efficiency and contestability provisions of the Dairy Industry Restructuring Act 2001 (DIRA) will be retained.
Minister of Agriculture Damien O’Connor says the Government will now undertake a comprehensive review of the DIRA and consult fully with the dairy sector.
O’Connor says the review will consider key issues facing the dairy industry, including, for example, environmental impact, land use, Fonterra’s obligation to collect milk, and how to achieve the best outcomes for farmers, consumers and the New Zealand economy.
Details on timing, delivery and definitive scope will be considered by Cabinet in the coming weeks.
“It was not in the interest of farmers, dairy processors, consumers, or the wider New Zealand economy to let these key DIRA provisions expire in the South Island and tinkering with the Act would not answer some of the bigger questions facing the industry.
“By rolling over the Act and committing ourselves to a wide-ranging review we are taking a considered and strategic approach to the changing needs of the dairy industry.’’
A report from the Commerce Commission, published in 2016, found that competition was not yet sufficient to warrant the removal of the DIRA provisions. This Government is satisfied that it is appropriate to retain the existing provisions while the review is conducted.
“Officials are currently working on the terms of reference for the review, and I intend to share these with the New Zealand public and the dairy industry in the first half of this year,” says O’Connor.
The DIRA was passed in 2001 to manage Fonterra’s dominant position in dairy markets, until sufficient competition emerged. Its automatic expiry provisions were triggered in 2015, when other dairy processors collected more than 20% of milksolids in the South Island.
