Great Milk Subsidy will Line Foreign Pockets

NEW ZEALAND - Kiwi families likely to miss out on cheaper milk as profits from extra 200 million litres heads offshore.
calendar icon 25 January 2012
clock icon 5 minute read

Fonterra said today it was still working through the detail of the Government's proposals on the oversight of farmgate milk pricing, but said it was already clear that the proposed changes to Raw Milk Regulations were a backward step.

Fonterra Chairman Sir Henry van der Heyden said the proposed changes to Raw Milk Regulations won't work and will have New Zealanders subsidising increasingly foreign-owned dairy processors that don't sell milk in New Zealand and who send their products and profits offshore.

"The Government's move to require more raw milk to be handed over to increasingly foreign-owned dairy companies operating in New Zealand will impose nearly $200 million of additional costs over the next three years alone and work against our efforts to reduce the price of milk in New Zealand," Sir Henry says.

"That's because not one of the six other major dairy processors supplies milk to New Zealanders," he says.

"The proposed changes will see windfall profits head straight into the pockets of increasingly foreign-owned dairy companies and will hinder, rather than help, New Zealanders get access to affordable milk."

Sir Henry says the extra 200 million litres of milk the Kiwi owned co-operative will be required to supply competitors each year will head straight offshore as the increasingly foreign-own competitors simply ship it as milk powder to their lucrative overseas markets.

"We are all for strong competition around the price of milk in New Zealand and we are happy to supply competitors who share our commitment to getting the price of milk down for Kiwis. But it makes no sense for Fonterra's farmers to do the hard yards producing this milk, only to be forced to hand it over to companies who then ship it straight offshore and pocket the profits," Sir Henry says.

Our Fonterra farmers are angry that their 1500 submissions have been ignored and that they are being press-ganged into this great milk subsidy that is poorly targeted and stands to miss the people it's meant to help - Kiwi families.

International competitors will be laughing at New Zealand, and it will be all the way to the bank. When they hear about this easy milk pipeline in New Zealand, more of them will be queuing to get in the door and skim off the easy profits of effectively buying up to 770 million litres of Fonterra produced milk, at a subsidised price and with no risk.

"The Government expects us to take all the risk and let competitors take milk from us when it suits them. It's a nonsense - we can't turn our cows off and on," he says.

Fonterra Chief Executive Theo Spierings says: "Handcuffing us at home will weaken our ability to compete and win overseas. It doesn't make sense to penalise New Zealand's home grown co-operative at a time it is bringing in more than a quarter of the nation's export earnings.

Shortly after joining the Co-op last year I signalled that I wanted to take a fresh look at milk pricing in New Zealand and find ways to provide more affordable milk for New Zealanders, in the face of continuing high international prices.

Our efforts to make milk more accessible and affordable are already showing results. Late last year we announced the Milk for Schools programme intended to provide free milk every day to every primary school child in New Zealand commencing in early 2013, and further efforts are already in train to remove costs from the supply chain for milk for New Zealand.

"Fonterra is competing fiercely in international markets against tough, foreign competition. It makes no sense to hit it with $200 million in extra costs with regulations that have no benefit for New Zealand consumers," Mr Spierings says.

"Why penalise the most productive sector of the economy? Farmers have taken many generations to build up something really unique for New Zealand through hard work, risk taking, and building on New Zealand's natural advantages."

Sir Henry says the proposed changes need to be modified for the good of all New Zealanders and the country's economy.

"Instead of waiting three years for changes to eligibility, we should start weaning off established independent processors in stages. This could be achieved by having them reduce one third from 1 June 2013, one third from 1 June 2014, and gone entirely from 1 June 2015," Sir Henry says.

Who knows what the political landscape will be in three year's time? Independent processors will be even more dependent on cheap milk then than they are now, and will back themselves to get further extensions.

The 10 cents per kgMS seasonal milk pricing on DIRA milk needs to remain. One competitor has publicly stated that it makes around 25 cents per kgMS on DIRA milk and the seasonal milk pricing goes some of the way to covering the higher price that Fonterra pays for milk in some parts of the year. The Government introduced this measure for good reasons two years ago and these reasons remain valid.

"The Government needs to stop the gaming of the Raw Milk Regulations. At the moment companies can set up 'virtual processors' or shell companies with no plant on the ground, and order up additional milk from Fonterra.

" If the proposed changes are implemented as they stand, the big losers will be all New Zealanders and the New Zealand economy. We can't stand by and let this happen - especially at a time when we are doing everything we can to make it easier for Kiwis to enjoy the benefits of milk", Sir Henry says.

Further Reading

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