Open Country Dairy Challenges Proposed Changes to DIRA
Open Country Dairy (OCD), New Zealand's second-largest dairy processor, has formally raised concerns with the Ministry for Primary Industries (MPI) about the current review of the Dairy Industry Restructuring Act (DIRA). The company, owned by Talley's Group, argues against the notion that DIRA represents unnecessary regulatory burdens, emphasizing its role as a critical safeguard against Fonterra's market dominance.
The review, initiated by Agriculture Minister Todd McClay, seeks to reassess key components of the Act, including the formulas for raw milk pricing, obligations for regulated wholesale milk supply, and rules for farmers' open entry and exit. OCD's Chief Executive, Mark de Lautour, voiced concerns that the review leans towards deregulation, which could undermine efforts to foster a competitive multi-processor dairy market over the past decades.
Since its inception in 2001, Fonterra's share of New Zealand's total milk pool has decreased from 96% to approximately 78%. Despite this decline, OCD highlights that independent processors like itself, which hold about 12% of the market, continue to face significant structural disadvantages. OCD argues that Fonterra retains substantial market power, necessitating strong legislative oversight.
A significant part of OCD's submission focuses on the regulated wholesale milk supply and price transparency. The company warns that if DIRA's current supply rules are weakened, Fonterra, especially following its sale of the Mainland Group consumer brands to Lactalis, could potentially exploit its position to disadvantage independent processors on raw milk pricing.
OCD plans to further engage in the review process by submitting additional economic modeling. The company intends to illustrate why the existing competition law under the Commerce Act is inadequate for regulating Fonterra's unique market position. OCD emphasizes the importance of maintaining a transparent and competitive market to attract long-term capital, encourage processing innovation, and protect farmgate milk prices for New Zealand producers.
