The Government is taking an anti-investment and anti-competitive position in amending dairy industry legislation to support Fonterra's capital restructure, say rival dairy firms.
In a joint submission to a Ministry for Primary Industries consultation paper on the Government's proposed amendments to the Dairy Industry Restructuring Act (DIRA) to accommodate the restructure, Synlait Milk, Miraka and Westland companies say they "strongly object to the anti-investment and anti-competitive position the Government will take by proceeding with the amendment(s)".
The trio say independent processors have made substantial investment on the basis Fonterra's "disruptive power" was held in check by DIRA statutory provisions. These included "free exit" provisions making it easy for farmers to leave Fonterra. The Government in effect now intended to remove the substance of the remaining "free exit" provisions "at Fonterra's behest".
Their submission claims the Government DIRA amendment proposal "is intended to allow Fonterra to proceed with the restructure in its preferred manner and in a way which removes the risk of legal challenge".
Start your property search
"The Government does not appear to propose to compensate those parties that will lose the right of legal challenge and will (and already have) suffer economic loss from the proposed restructure."
They also take issue with MPI not formally seeking submissions on "the Cabinet decision to support Fonterra's capital restructure". The trio's submission, and others, including a strongly critical take by the country's second-largest dairy processor Open Country, have yet to be published by MPI, which says it is analysing them. A submission by Federated Farmers broadly supports the Government's proposed response.
NZME invited Fonterra chairman Peter McBride to respond to recent wider criticism of the proposal but he declined, saying Fonterra would wait until the submissions were published to comment.
Fonterra, a farmer-owned co-operative, is New Zealand's biggest business and the world's sixth-largest dairy company by revenue.
It was created from an industry merger in 2001 under the specially written DIRA legislation, which allowed it to skirt Commerce Commission approval. This is why the restructure needs state approval.
Today the company still collects around 80 per cent of all New Zealand raw milk. It also still sets the benchmark national price for raw milk, though argues it has independent monitors, including the Commerce Commission, looking over its shoulder as it does so.
With national milk production expected to fall, Fonterra says it needs the capital restructure to attract milk supply and remain viable.
Among other measures, the proposed restructure makes it cheaper for farmers to buy supply access to Fonterra and caps a listed fund which enables outside investors to buy non-voting, dividend-carrying units in Fonterra shares.
Synlait, Westland and Miraka say MPI has failed to consider independent processors in considering whether the proposed amendments would reduce confidence in New Zealand capital markets.
They say in concluding the risk was low, MPI had only focused on the likely impact on FSF investors.
The trio claims DIRA changes sought by Fonterra include unravelling protections put in place at its last capital restructure in 2012, and the Government is supporting that.
"At Fonterra's behest, the Government is now taking actions which will have the effect of undermining and effectively removing the last remaining ‘key regulatory tool for managing Fonterra's dominance risk' - ie the ‘free exit' provision. This is being done without resort to a (DIRA) section 147 review of competition despite the magnitude of the changes and likely impact on competition."
