Time To Effect Meaningful Change -- October 2019

Bashing Fonterra in the media is so prevalent it’s almost a national pastime; farmer shareholders keen to share that phone call they got from the chairman, commentators sticking the boot in at the behest of their dairy processor clients and any politician looking for some airtime will happily have a crack.

If the payout is low it’s due to the incompetence of directors and management, if the payout is high it’s because Fonterra is screwing the scrum and forcing their competitors to pay more for milk than it’s worth.

While there are legitimate criticisms to be levelled at the Co-op, and they’re not above scoring own goals in that department, it’s so easy that writing a column panning them is almost lazy. I make no secret that I’m a fan of Fonterra’s new direction; the honesty that is largely on display at shareholder meetings, the way they now engage with the government instead of the ‘Fortress Fonterra’ mentality of old and their willingness to show leadership and vision in areas that affect their farmers.

When this newfound engagement and sense of purpose draws praise, who ever thought we’d see headlines from a Green MP commending Fonterra for their leadership, it also draws a barrage of criticism: bloody Fonterra is cosying up to the Government!

An agricultural journalist recently tweeted that Tatua “… will pay out $8.50, $2.15 more than Fonterra”. While I’m a huge Tatua fan and am happy to celebrate their success, that sort of linear and uncritical comparison is pretty unhelpful.

“Imagine,” I replied, “if Tatua had the same regulatory constraints as Fonterra and had to accept milk from everyone who wanted to supply them.” Unfortunately it seemed the journalist couldn’t imagine this scenario and the point I was making was somewhat lost on him.

I think the point has been lost on a lot of people, with all the noise about fresh water and emissions and Zero Carbon, the fact there is a very important issue under consideration by parliament at this very moment has slipped under the radar.

The continuation of the Dairy Industry restructuring Act (DIRA) in its current form runs the very real risk seeing New Zealand with too much milk processing capacity. Fonterra is obligated to supply new processors with at-cost raw milk, essentially subsidising the competition and allowing them to enter the market with almost no risk. This subsidised supply doesn’t benefit domestic consumers; the processed product is shipped offshore along with the profits.

In the face of a static or declining milk pool, excess processing capacity can only lead to one thing: plant closures like those we are seeing across the Tasman.

I don’t understand the reticence of successive governments to radically reform DIRA; after nine years in power and a bit of tinkering, National have finally promised to repeal DIRA. They did this after realising that Labour were more proactive with deregulation than they had ever been, but that doesn’t do us any good while they’re in opposition.

The Greens should support the wholesale reform of DIRA; it has had the unintended consequence of being the single biggest factor in driving land use to dairy by compelling Fonterra to take all of the new milk. Labour should support the reform of DIRA if only  because Fonterra has a highly unionised and happy workforce whom they look after very well, and a strong Fonterra means a strong dairy worker’s union. Of all the parties New Zealand First should be leading the charge, subsidised foreign companies coming into New Zealand and exporting the profits is anathema to them.

Legend has it that Shane Jones once quipped every time he attacked Fonterra he went up in the polls, and he’s not the only politician to have had a crack in recent times. It’s time for the politicians to take a serious look at what’s holding Fonterra back and do something about it.

Taking action is not as easy as snide remarks and soundbites, but it’s their job, they can effect meaningful change and it’s time they did.