Dairy Sector: Fonterra Says Milk Supply Low
August 16th, 2010
There are a lot of nationally important issues playing out as the Govt figures out whether and how much, to whom, Fonterra should have to supply milk under the DIRA Act. The Dairy Industry Restructuring Act of 2001 which allowed Fonterra to be set up as a virtual monopoly, required up to 600m litres of raw milk be available to help start-ups and processors without their own milk supply. It was estimated trigger points from the original legislation would call for a review of DIRA next year, where currently Fonterra has a 92% market share.
The Govt has pushed a decision on Fonterra’s requirement to supply until after the co-operative has figured out how its share trading amongst farmers proposal beds in, supposedly late next year. An 80% trigger point has been established in the meantime. Fonterra’s argument is the requirement to supply milk, which it does for 25 companies, including expensive to produce winter milk, is working to its detriment. The co-op says “a significant proportion of that milk is to larger competitors who have their own milk supply as well. DIRA was necessary when Fonterra was formed, and it isn’t an argument against the Act per se. It is an argument about where we’re going and whether it is appropriate that Fonterra farmers supply people who don’t meet that description.” This is more important than a Fonterra versus Govt stand up fight we may have seen in the past. The future of agriculture, as the dairy industry sees its competitive production advantages eroded by cheaper countries such as Uruguay, as well as increasing foreign purchase of strategic parts of the whole thing, is increasingly under question. DIRA’s a sub-text, the discussion around and beyond it is vital for all concerned.
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