Industry Regulations

The Dairy Industry Restructuring Act 2001 (DIRA) enabled the creation of Fonterra in 2001.

DIRA BACKGROUND

Fonterra was formed by the amalgamation of New Zealand’s two largest dairy co-operatives – New Zealand Co-operative Dairy Company and Kiwi Co-operative Dairies – and the assets of the former New Zealand Dairy Board.

In June 2015 the Minister for Primary Industries requested a report on the state of competition in the New Zealand dairy industry, as contemplated by section 148A of DIRA. The Commerce Commission's report is expected to be completed and provided to Ministers in early 2016. It will then be up to the Government to consider the findings in the Commission’s report and any changes that should be made to DIRA. 

OPEN ENTRY & EXIT

DIRA was introduced to ensure that New Zealand dairy markets remain contestable and efficient. It promotes contestability by ensuring that New Zealand dairy farmers can enter and exit Fonterra.

Under DIRA Fonterra has a statutory obligation to:

  • be an open co-operative that accepts (subject to limited exceptions) all milk supply offered by any dairy farmer in New Zealand who is willing to hold shares in Fonterra in proportion to their milk supply;
  • ensure the terms of supply that apply to new farmer shareholders only differ to those applying to existing farmer shareholders to reflect different circumstances;
  • allow farmer shareholders to supply up to 20% of their weekly production throughout the season to another processor;
  • allow farmer shareholders to leave the Co-operative and, on leaving, purchase their milk vats (subject to specified conditions).

For more detail on the DIRA freedom of entry and exit requirements go to the Ministry for Primary Industries website.

RAW MILK REGULATIONS

Under the Dairy Industry Restructuring (Raw Milk) Regulations 2012, Fonterra must make up to 795 million litres of the milk it collects each season available to independent processors at either an agreed price, or a regulated price.

Of that amount, the volume of raw milk that Fonterra must supply to:

  • Goodman Fielder New Zealand Limited is limited to 250 million litres per season, and
  • any other independent processor and their interconnected bodies corporate is limited to 50 million litres per season.

Fonterra is required to disclose certain information including the forecast and actual figures for the season of:

  • The total quantity of raw milk to be supplied by shareholding farmers
  • The total quantity of raw milk contracted to supply to independent processors
  • The total cost of milk
  • The Farmgate Milk Price
  • Kilograms of milk solids supplied
  • The additional cost of winter milk for each island
  • The additional cost of organic milk

Raw Milk Regulations – Forecast and Actual Information

Milk Price Methodology

Since the financial year ended 31 July 2009, the Farmgate Milk Price has been calculated in accordance with the Farmgate Milk Price Manual. The Farmgate Milk Price determines the amount paid for milk delivered to the farmgate by farmer shareholders.

Read more about Milk Price Methodology.

As required under the DIRA, the Commerce Commission carries out a Statutory Review of both the Milk Price Manual and the Milk Price Calculation annually. For more information about the review process and for copies of the Commerce Commission’s reports can be located below.

COMMERCE COMMISSION

Under section 150H of the Dairy Industry Restructuring Act 2001 (as amended in July 2012) the Commission is required to review Fonterra’s Milk Price Manual for each season and make a report on the extent to which it is consistent with the purpose set out in section 150A of the Act. To assist the Commission’s review Fonterra needs to provide the Milk Price Manual for the current season, together with recommendations of the Milk Price Panel in relation to the Setting of the Base Milk Price, notification of required changes, certification of why it meets the purpose, and supporting reasons before 1 August each year. The Commission is required to make its final report by 15 December each year.

Under Section 150O of the Dairy Industry Restructuring Act 2001 (as amended July 2012) the Commission must review Fonterra's calculation of the base milk price for each season and report on the extent to which it is consistent with the purpose set out in section 150A of the Act. To assist the Commission's review Fonterra must provide (by 1 July in each year) the assumptions adopted and the inputs and processes used by Fonterra in calculating the base milk price for the preceding season. They must also provide certification (including reasons) that the assumptions inputs and processes are consistent with the purpose set out in section 150A of the Act. The Commission is required to make its final report by 15 September each year.

Statutory Review of Milk Price Manual

STATUTORY REVIEW OF MILK PRICE CALCULATION

Read more about Milk Price Methodology.

Read more about Farmgate Milk Prices.