Wellington, New Zealand—The New Zealand Ministry of Primary Industries (MPI) is asking for input on issues and options identified in a new discussion paper on the Dairy Industry Restructuring Act 2001 (DIRA).

The DIRA was enacted in 2001 to facilitate the formation of a national “champion,” Fonterra, to drive the New Zealand dairy industry’s economic performance in global dairy markets, and to regulate Fonterra’s dominance domestically, for the long-term interests of New Zealand dairy farmers, consumers and the wider economy.

Since 2001, the dairy industry’s economic contribution to New Zealand has more than doubled, and there has been significant processor entry and some product diversification, both in exportfocused and domestic consumer dairy markets, the discussion paper noted.

“However, economic value growth has come primarily from greater volume of commodity production, in response to demand from global markets, and increased cow numbers,” the paper pointed out. “The expansion of the dairy industry has had negative impacts on the environment.”

Some stakeholders are concerned that the DIRA regulatory provisions may have contributed to adverse industry performance outcomes, the paper said. For example, there are concerns that the DIRA may be encouraging uneconomic and environmentally unsustainable milk production; preventing Fonterra from transitioning to higher value-add processing activities; and incentivizing inefficient market entry by new dairy processors.

There is also a question of whether the DIRA regulatory regime is still needed.

The purpose of the review is to ensure that the DIRA: is effective at achieving its regulatory purpose and remains fit-for-purpose; does not create unintended consequences; and does not stay in place for longer than necessary.

The DIRA’s core regulatory objective is to prevent Fonterra from using its dominance to create barriers for farmers’ milk and land flowing to their highest value uses. The DIRA achieves this by ensuring that farmers have access to transparent information about Fonterra’s performance (in terms of Fonterra’s milk and share prices). This transparency is provided through the DIRA’s requirements for the base milk calculation and Trading Among Farmers (TAF) provisions.

The DIRA’s open entry and exit provisions then enable farmers to act on Fonterra’s performance information by freely switching their milk supply from and to Fonterra.

The DIRA also facilitates an entrance pathway for new dairy processors and supports competition in the domestic consumer dairy markets through the raw milk regulations, the paper explained. These provide for independent processors without their own viable milk supply to have access to a limited quantity of regulated milk from Fonterra.

In developing the discussion paper, MPI spoke to a wide range of people operating in the dairy industry. The prelminary analysis of stakeholder concerns indicates that the DIRA is:

• Effective at achieving its core regulatory objective of managing Fonterra’s dominance; • Still relevant and needed at this stage; and • Unlikely to be encouraging inefficient industry growth or preventing Fonterra from pursuing a value-add strategy.

But, according to the paper, the DIRA appears to be preventing Fonterra from effectively managing some aspects of its farmers’ environmental performance, thus producing unintended consequences; and providing access to regulated milk for large dairy processors for whom it may no longer be necessary, thus not being fit-for-purpose.

Also, there is an opportunity to consider whether the DIRA should be amended to: promote greater confidence in the base milk price calculation; and preserve competition in the domestic consumer dairy markets in the short term, while discouraging any undue regulatory dependency in the longer term.