How Tatua will cope without Fonterra milk

Waikato milk co-operative Tatua is shrugging off changes to milk regulations which will do away with Fonterra's guaranteed supply to big independents by June 2016.

The changes were announced today by Primary Industries Minister David Carter.

They follow a year-long review of the Dairy Industry Restructuring Act, established to ensure competitive aspects to the industry with the formation of market-dominating Fonterra in 2001.

Changes include giving large independent processors only three more seasons to access regulated milk and setting monthly limits on regulated supply to reflect seasonal fluctuations.

Tatua Co-operative Dairy Company chief executive Paul McGilvary told NBR ONLINE Fonterra supplies roughly 25% of its 200 million litres of milk a year but by 2016 it will not need it.

"The DIRA milk has been useful to us – it has given us an opportunity to transit to a more value-added business and we've done that quite aggressively in recent times.

"By the time the DIRA milk disappears in 2016 we'll be further advanced on that strategy.

"We expect the returns from our value-added business to more than outweigh the loss of Fonterra milk.

"Should we need more milk we can go to the market or talk to shareholders about achieving production growth."

Fonterra still has to make up to 5% of its total milk supply available to independent processors, with conditions.

In a statement, Fonterra chairman-elect John Wilson says the changes address its key concerns and are an overall improvement.

"They will promote competition at the farm gate and ensure that sufficient regulated milk is available for dairy food and beverage companies who process raw milk but do not have their own supply, and for start-ups that genuinely need it."

Fonterra critics say the DIRA regulations is the price the dairy giant pays for its market dominance.

However, others say it is the co-operative's 10,500 farmers who are really paying – by propping up other companies and taking a smaller return.

The regulation changes kick in from June 1, 2013.

dwilliams@nbr.co.nz