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Fonterra discretion over new conversions

NZ Newswire logoNZ Newswire 16/03/2017 Paul McBeth

Fonterra is obligated to accept all new milk offered, something it has said was no longer necessary or efficient. © Getty Images Fonterra is obligated to accept all new milk offered, something it has said was no longer necessary or efficient. Fonterra will get to choose whether to accept supply from new dairy conversions from the 2018/19 season in new legislation governing the country's biggest company.

Primary Industries Minister Nathan Guy on Thursday tabled the Dairy Industry Restructuring Amendment Bill in Parliament, which will give Fonterra discretion to accept shareholder applications from new dairy conversions, although the move wouldn't come in as early as Guy foreshadowed in a discussion paper last year.

Fonterra is obligated to accept all new milk offered, something it has said was no longer necessary or efficient, which the Commerce Commission also raised in its report as a precursor to last year's consultation, despite finding no evidence the cost involved to the dairy company was material.

The legislation will keep the Dairy Industry Restructuring Act regime for the time being, with a review scheduled in 2020/21, and will also drop Fonterra's obligation to sell regulated raw milk to large export-focused processors from the 2019/20 season, and reduce the flexibility rival processors have in projecting the volumes of raw milk they want to buy from the start of the 2018/19 season.

The government backed away from an earlier intention to also reduce the volume of raw milk Fonterra has to make available to other processors by 60 per cent over three years on advice that removing eligibility for large, export-focused processors to source regulated raw milk would affect firms that enter the local market without their own supply.

And that may not develop the factory gate market with new entrants in the future, while the reduction of the volume of raw milk available would hit ingredients firm Goodman Fielder the most.

In 2015, independent processors collected 22 per cent of all milk solids in the South Island and 9 per cent in the North Island, triggering the expiry of the provisions in the South Island by no later than May 31, 2018.

The Commerce Commission was tasked with investigating whether Fonterra's 86 per cent share of the local market gives it too much dominance as part of the legislation governing the sector, and found there still wasn't enough competition to warrant full deregulation.

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