Dairy Industry Restructuring Act
The Dairy Industry Restructuring Act 2001 (DIRA) allowed the creation of Fonterra Co-operative Group Limited. The Act has provisions to promote the efficient operation of dairy markets in New Zealand by regulating the activities of Fonterra to ensure New Zealand markets for dairy goods and services are contestable.
A comprehensive review of the Dairy Industry Restructuring Act 2001 (DIRA) and its impact on the dairy industry was announced in December 2017.
DIRA regulates New Zealand's dairy industry
The 4 key aspects of the dairy industry that the DIRA regulates are:
- the dairy export quota management system
- the activities of Fonterra
- the monitoring of Fonterra's farmgate milk price
- herd testing and the dairy core database
When Fonterra was established in 2001, it collected over 96% of all cow milk produced in New Zealand. The DIRA is needed to ensure our domestic dairy industry operates as much as possible as if there is competition in the market. Subparts 5 and 5A of the Act say:
- farmers must be able to enter and exit Fonterra without restriction or penalties (with minimal exceptions)
- independent processors must be able to obtain limited amounts of raw milk from Fonterra
- shareholding farmers can supply up to 20% of their weekly production to independent processors
- the Commerce Commission must report annually on the way Fonterra sets the base milk price.
Trading Among Farmers
As a co-operative company, Fonterra farmer shareholders must hold shares in proportion to the milk solids they supply. In 2012, Fonterra introduced Trading Among Farmers (TAF) to provide a more flexible capital structure. Under TAF, farmers buy and sell Fonterra shares among themselves, rather than directly with Fonterra.
TAF also lets outside investors buy units in Fonterra. These investors get the economic benefits of shares but don't have the right to vote.
The DIRA requires reviews of the state of competition
Triggers exist for a review of the state of competition. A review is triggered when independent processors collect over 20% of the milk solids in the North Island, the South Island, or both islands. A review would also have started on 1 June 2015 if no trigger had been activated by that date.
Once a trigger is met, an independent report on the state of competition is commissioned. This report and government analysis are used to decide if there's enough competition to allow subparts 5 and 5A to expire.
Recent report on the state of competition
In 2015, the 20% threshold was met in the South Island and the Commerce Commission undertook an independent report on the state of competition in the New Zealand dairy industry.
Find out more about the DIRA review
- Market share threshold certificate for the 2014/15 dairy season [PDF, 328 KB]
- Commerce Commission's report on competition in the New Zealand dairy industry
- MPI's public consultation
DIRA encourages Fonterra to set a base milk price as an incentive to operate efficiently while helping make a competitive market for buying milk from farmers. Fonterra must:
- appoint a milk price panel
- maintain a milk price manual
- calculate the price of milk for each milk season using the manual.
The Commerce Commission reviews the milk price manual and the calculation each milk season, as DIRA requires.
Find out more
- Farmgate milk price information – Fonterra website
- Commerce Commission's dairy page
- Subpart 5A of DIRA – NZ Legislation website
The dairy core database holds data on cattle to help the industry continuously improve livestock. Following public consultation in 2012 and 2014, the dairy core database was transferred to Dairy NZ's Dairy Industry Good Animal Database (DIGAD).
- Dairy NZ's information about DIGAD
- MPI's 2014 consultation on the dairy herd improvement industry
- MPI's 2012 consultation document on the transfer of the database [PDF, 229 KB].
The data for the database is gathered by certified herd testers. The DIRA provides for the certification regime.
- Register of herd testers and bodies approved to certify testers
- Dairy Industry (Herd Testing and New Zealand Dairy Core Database) Regulations 2001
Staying in touch
If you have questions about the DIRA or want to get updates, email email@example.com
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