Independent South Island milk processors cross competition threshold, Guy says

Independent milk processors collected one-fifth of all milk solids available in the South Island, triggering the expiry of pro-competition provisions under the legislation that merged New Zealand's largest dairy cooperatives and created the world's largest milk exporter, Fonterra Cooperative Group.

The independent processors collected 22% of all milk solids in the South Island and 9% in the North Island, Primary Industries Minister Nathan Guy said in a statement. Under the Dairy Industry Restructuring Act (DIRA), the government is required to certify when the 20% threshold is reached, as it triggers the expiry of the provisions in the South Island by no later than May 31, 2018.

"While Fonterra continues to collect more milk every season, it is encouraging to see new processors enter the market and create competitive pressure," Mr Guy said. "Independent processors also collected 9% of all milk solids in the North Island. This indicates there is increasing competition in the New Zealand dairy industry."

The act and the competitiveness in New Zealand's dairy market is currently under a nine-month review by the Commerce Commission. Among the issues under investigation is whether the act's competition thresholds have been met. The current threshold frees Fonterra from its obligation to supply milk to smaller competitors once at least 20% of supply is taken by competitors in both the North and South Islands. Fonterra currently has an 86% share of the nation's milk pool, down from 96% when it was set up in 2001.

"While the percentage of milk solids collected by independent processors is one indicator of competition, it is not definitive," Mr Guy said in his announcement today. "For this reason the Commerce Commission has been tasked with providing a report on the state of competition in the New Zealand dairy industry.

"The government will need to consider next year whether to promote changes to legislation to extend the duration of the pro-competition provisions, or provide a transition pathway to deregulation, or a combination of both," Mr Guy said.

Competitors of Fonterra claim there's still insufficient competition to deregulate the industry, and either want the status quo or the regulations tightened.

(BusinessDesk)