Dairy Industry Restructuring Act 2001

Coat of arms of New Zealand

Dairy Industry Restructuring Act 2001 (DIRA) is a significant piece of legislation in New Zealand that was enacted to regulate the dairy industry following the major restructuring of the industry. The Act was a response to the consolidation of dairy cooperatives into a single entity, Fonterra Co-operative Group, which was formed in October 2001. The DIRA aimed to ensure the efficiency and competitiveness of the New Zealand dairy sector in the global market while maintaining fair and competitive domestic market conditions.

Background

Prior to the enactment of the Dairy Industry Restructuring Act 2001, the New Zealand dairy industry was characterized by numerous small cooperatives that were responsible for the collection, processing, and marketing of milk and dairy products. The industry faced challenges such as inefficiencies due to the small scale of operations and the need for a more competitive structure to take advantage of international market opportunities. The consolidation into Fonterra was seen as a means to create a more efficient and globally competitive entity. However, this consolidation raised concerns about potential monopolistic practices in the domestic market, leading to the development of the DIRA.

Provisions

The Dairy Industry Restructuring Act 2001 contains several key provisions designed to regulate the industry:

• Open Entry and Exit: Fonterra is required to accept all milk from New Zealand dairy farmers who wish to supply it, and farmers are free to leave Fonterra if they choose.
• Share Valuation: The Act outlines the method for valuing Fonterra shares, which are linked to the volume of milk supplied by the farmer.
• Regulation of Milk Prices: DIRA provides mechanisms for the regulation of milk prices to ensure that Fonterra's dominant position does not lead to unfair prices for consumers or farmers.
• Commerce Commission Oversight: The Act grants the Commerce Commission powers to oversee and review the dairy industry's performance and Fonterra's compliance with the Act.

Impact

The Dairy Industry Restructuring Act 2001 has had a profound impact on the New Zealand dairy industry. It facilitated the creation of Fonterra, which has become one of the world's largest dairy exporters. The Act has also ensured that the domestic market remains competitive and that the benefits of the dairy industry's global success are shared among New Zealand farmers. However, the Act has been subject to periodic review and amendments to address emerging challenges and ensure it continues to meet its objectives.

Controversies and Criticisms

The DIRA has faced criticism from various quarters. Some argue that it has not gone far enough in preventing Fonterra's market dominance from stifling competition. Others believe that the regulatory burden imposed by the Act could hinder the industry's efficiency and innovation. The balance between fostering a globally competitive national champion in Fonterra and ensuring a competitive domestic market remains a contentious issue.

Amendments

Since its enactment, the Dairy Industry Restructuring Act 2001 has been amended several times to address changing conditions in the dairy industry and to refine the regulatory framework. These amendments have focused on issues such as the criteria for entry and exit, the regulation of milk prices, and the oversight functions of the Commerce Commission.

Conclusion

The Dairy Industry Restructuring Act 2001 represents a critical intervention in the New Zealand dairy industry, aiming to balance the benefits of consolidation and global competitiveness with the need for domestic market fairness and competition. As the industry continues to evolve, the Act and its amendments serve as a framework for addressing the challenges and opportunities that lie ahead for New Zealand's dairy sector.