Dairy Industry Restructuring Act 2001 review

Background

The DIRA was enacted in 2001 to enable the formation of Fonterra in order to drive the New Zealand dairy industry’s economic performance in global dairy markets, and regulate Fonterra’s dominance domestically, for the long-term interest of New Zealand dairy farmers, consumers and the wider economy.

In 2019, Cabinet decided to make changes to the DIRA to ensure that it remains fit for purpose and is effective at promoting the best outcomes for all New Zealanders.

As with any law change, a majority of Parliament must vote in favour of the changes before they become law. You'll have an opportunity to comment on government decisions as the Bill progresses through Select Committee.

What the changes are for

Changes are needed to ensure:

• better management of on-farm performance
• planning for processing capacity
• increased certainty around milk price calculation
• removal of unnecessary regulation
• protection of consumer interests, and
• certainty around future regulatory review.

How we'll achieve this

To achieve these objectives, the following changes have been proposed:

• Retain the open entry and exit provisions, including the non-discrimination requirement, to manage ongoing risks arising from Fonterra’s large size and scale in New Zealand dairy markets.
• Allow Fonterra to refuse milk supply from farmers in circumstances where milk is not compliant or unlikely to comply with Fonterra’s terms and standards of supply or is supplied from newly converted dairy farms.
• Clarify that Fonterra’s terms of supply can relate to, and price differentiate on the basis of, various on-farm performance matters, including environmental, animal welfare, climate change and other sustainability standards.
• Limit Fonterra’s discretion in regard to setting a key assumption in calculating the base milk price, the asset beta.
• Require Fonterra to appoint one member of its Milk Price Panel on the nomination of the Minister of Agriculture.
• Clarify that Fonterra can pay a farm gate milk price that differs from the calculated base milk price.
• Remove the requirement for Fonterra to supply regulated milk to independent processors with their own supply of 30 million litres or more in a single season.
• Update the terms on which Fonterra supplies regulated milk to Goodman Fielder for the benefit of domestic consumers.
• The DIRA regime shall be reviewed on a six-yearly basis, to provide regulatory certainty.

Cabinet decisions [PDF, 160 KB]

Cabinet paper [PDF, 1.8 MB]

Regulatory impact assessment [PDF, 7.4 MB]

Cabinet paper – Appendix 2 [PDF, 2.1 MB]

Where the proposed changes came from

In 2018, the Minister of Agriculture announced a review of the DIRA and its impact on the dairy industry. MPI conducted the review.

The Minister released Terms of Reference for the review in May 2018. Formal public consultation took place from 2 November 2018 to 8 February 2019. MPI engaged with stakeholders including dairy processors, farmers, NGOs, iwi, and financial institutions.

MPI received 188 submissions. These helped to form the final proposed changes.

• Form submissions from the public [PDF, 6.3 MB]
• Submissions from the public [PDF, 14 MB]
• Submissions from organisations [PDF, 27 MB]

Report commissioned

MPI also commissioned a report from Frontier Economics to help inform on the proposed changes.

• Download the report [PDF, 7.6 MB]

What happens next

The Parliamentary Counsel Office will draft a bill and amendments to the relevant regulations. The proposed law will then be introduced to Parliament and go to a select committee for further consultation and examination. The committee will report its findings to Parliament. Then, Parliament will vote on whether to accept the proposed law changes.

The Select Committee process provides another opportunity for people to have their say on the government’s decisions. We will update this webpage to let people know when the Select Committee calls for submissions.

Find out more

• Government media release: Changes to dairy industry legislation
• Questions and answers [PDF, 407 KB]