Dairy Industry Restructuring Act (DIRA)

The Dairy Industry Restructuring Act (2001) was a specific Act of Parliament introduced to allow for the formation of Fonterra.

Upon its creation, Fonterra collected approximately 96 percent of New Zealand's milk production.

Given this market position it was necessary for the government to regulate Fonterra to ensure that New Zealand dairy markets are contestable and efficient.

This led to the development of DIRA to which there are two main parts:

  1. The open exit and entry provisions: Fonterra must accept all applications from farmers to either enter or exit the co-operative and accept the volume of milk the farmers wishes to supply. Fonterra must also issue and redeem co-operative shares in accordance with farmers' milk supply decisions. The price of co-operative shares issued and redeemed must be the same in any given season.
  2. The Raw Milk Regulations: Require Fonterra to make up to 600 million litres of the raw milk it collects from farmers, available to independent processors at either an agreed price or the default price specified in the Regulations.

These "pro-competitive provisions" work in parallel with, and are supplementary to, the general competition provisions of the Commerce Act 1986.

Review of the DIRA expiry thresholds

The DIRA has market share thresholds that specify the expiry of the pro-competitive provisions. MAF consulted with the industry on the future of the pro-competitive regulatory regime, early in 2010.

The consultation document and submissions received are below.

As a result of the consultation, the Government is to reset the market share thresholds. This has the effect of extending the application of pro-competitive provisions placed on Fonterra.

Progress on the DIRA expiry thresholds is ongoing.

Background documents

Review of the DIRA Raw Milk Regulations

MAF has previously conducted review of the Regulations in 2007 and will do so again in 2011.

Following the 2007 review, the Dairy Industry Restructuring (Raw Milk) Regulations were amended to:

  • replace the default pricing formula for regulated raw milk with the farm gate milk price plus $0.10 per kilogram of milksolids from 1 June 2010;
  • Set the volume of milk that Fonterra is required to supply to up to 600M litres from 1 June 2009; and
  • Introduce a pro-rata quantity rationing rule that would be employed in the event of excess demand for regulated raw milk from 1 June 2009.

The Dairy Industry Restructuring Act was amended to allow, but not require, the Minister of Agriculture to use an auction system or any other method at all for determining the price and allocation of regulated raw milk.

All relating documents can be found in MAF's publications database.

Additional Information

 

Last Updated: 13 January 2011

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