By Allan Barber
Fonterra chairman, Henry van der Heyden, says that monitoring the milk price is not necessary, but “we can live with it”, particularly with Commerce Commission oversight.
However Simon Couper, Fonterra Shareholders’ Council chair, believes it to be Draconian with the potential over time “to destroy New Zealand’s biggest, most successful and most important export industry.”
Federated Farmers’ dairy section head, Willy Leferink, inclines more to Couper’s view than van der Heyden’s, stating that Feds look forward to submitting on the bill at the Select Committee stage, because “If the policy settings for milk pricing at the farm gate become arbitrary, then it’ll not only shoot our largest export industry in the foot, it will directly affect the price consumers pay for their milk,” he warned.
Presumably both perspectives can’t be right.
Sir Henry appears to be more concerned with getting the enabling legislation for Trading Among Farmers (TAF) passed by Parliament which might explain why he is comparatively sanguine about the proposal to monitor farmgate milk prices.
Couper and Leferink who both represent the dairy farmers are much more concerned that the introduction of provisions for milk price monitoring may result in Fonterra being forced to reduce the price paid to farmers.
It’s a strange world where the government can effectively attempt to legislate for price control of our largest export earning industry purely and simply because it wants to appear to be doing something constructive for its domestic electorate.
Milk prices have acquired an unduly high profile in the New Zealand public’s mind because Fonterra’s export success has brought about high domestic prices, much like lamb, although nobody has dared to suggest everybody has a right to afford lamb.
It’s also strange to see attempts to monitor the price paid to the supplier when it’s really the supermarkets which set the prices; even if the price came down, the retailers wouldn’t necessarily reduce the retail price.
Fonterra’s apparent willingness to see price monitoring introduced suggests it is not too concerned that there will be anything untoward in what the Commerce Commission finds about its price setting process.
The other leg of the restructuring amendment, TAF, also continues to concern quite a number of dairy farmers, as well as the other political parties.
ACT is against it, Damien O’Connor has spoken out vigorously against it which suggests Labour won’t vote for it, the Greens aren’t in favour, nor is New Zealand First.
Therefore unless the government can drum up enough support, the bill may not even get past its first reading.
Fonterra is clearly keen to see TAF introduced early next year because the company has had several attempts at convincing its shareholders of its virtues, but there is still a vocal body of shareholders who aren’t in favour because they believe it is the thin end of the wedge leading to an eventual loss of farmer control of their cooperative.
Van der Heyden is adamant that shareholders will get to see the detail of any changes to the TAF scheme before it can be introduced, but it’s a critical aspect of Fonterra’s future funding structure. It reduces the redemption risk from a sizeable chunk of equity and introduces a listed investment vehicle which can attract outside funds without introducing non shareholder voting powers.
On the face of it this is a win-win situation for Fonterra the company and its shareholders alike. However unless it can convince shareholders this won’t be a Trojan horse and the government succeeds in passing the Dairy Industry Restructuring Amendment Bill, neither TAF nor milk price monitoring will be going anywhere fast.
Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he run a boutique B&B with his wife. You can contact him by email at email@example.com or through his blog at http://allan.barber.wordpress.com.