Farmers are questioning why the nation's biggest dairy co-operative should continue to supply "regulated" milk to rival processors which have their own farmer-suppliers, and are often backed or owned by overseas investors and competing with Font
Farmers are questioning why the nation's biggest dairy co-operative should continue to supply "regulated" milk to rival processors which have their own farmer-suppliers, and are often backed or owned by overseas investors and competing with Fonterra in overseas markets.
The government yesterday announced it was moving the goalposts on triggers for a "sunset clause" in Fonterra's enabling legislation.
Fonterra controls over 95% of the nation's milk production, which is about 16 billion litres, but provisions of the Dairy Industry Restructuring Act (DIRA) entitle independent processors to each receive up to 50 million litres of raw milk -- an effort to level the playing field for small independents.
The allocation of up to 5% of Fonterra milk at cost price to provide a level playing field for smaller processors is a decade old, but the co-operative's farmers have increasingly complained of having their "pockets picked" by upstart rivals.
Federated Farmers' dairy section chairman Lachlan McKenzie said last night the raw milk regulation "gets up the nose of farmers by taking their hard work and giving it almost at cost to someone else."
Agriculture Minister David Carter should instead require a "take or pay" annual milk auction, rather than allowing companies to effectively dial up a tanker when they needed milk.
And Fonterra has expressed concern over that milk going to dairy companies operating in New Zealand with the support of overseas links. These include Synlait -- with a Japanese shareholder (Mitsui) and Chinese investors controlling its dairy factory -- New Zealand Dairies and its shareholder Nutritek (from Russia); Open Country Dairies and its shareholder Olam (from Singapore); Goodman Fielder (from Australia); and Britain's Cadbury.
Most recently, Chinese-controlled Natural Dairy (NZ) Holdings Ltd has said it wants Fonterra milk to start up a plant packaging UHT milk for export to the lucrative Chinese market.
Fonterra had been expecting its obligation to supply this regulated milk to expire in the South Island next year, and in the North Island in 2011, but the Government yesterday announced it is extending the term of the obligation.
The nation's third-biggest milk processor, Goodman Fielder, is reported to be expecting to receive 275 million litres of Fonterra milk in the current season.
Fonterra said yesterday that it is now supplying raw milk to 25 different companies.
"We accept Fonterra's role in supplying regulated milk to help start-ups and processors without their own milk supply," said chief executive Andrew Ferrier.
"However, a significant proportion of milk supplied under the regulations goes to larger competitors who have their own local milk supply, are increasingly foreign-owned, and are competing with us in overseas markets.
"All of these competitors use the DIRA regulations to fill their processing plants at times of the year when milk supply is low.
"This means Fonterra is helping processors to become more efficient by giving them more flexibility in sourcing their milk," he said. It was a significant cost to Fonterra and it farmers, and the gains were increasingly going back to foreign shareholders.
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