Dairy Industry Restructuring Act 2001 review

A comprehensive review of the Dairy Industry Restructuring Act 2001 (DIRA) and its impact on the dairy industry was announced in December 2017. Find out about the review.

Update – 6 June 2019

Decisions about changes to the DIRA released

We've released information about the decisions and changes to the DIRA that the review and public consultation generated. 

Overview

The Dairy Industry Restructuring Act 2001 (DIRA) promotes the efficient operation of New Zealand dairy markets.

The DIRA is a significant driver of the dairy industry's performance. When the DIRA was introduced in 2001, it transformed the dairy industry by enabling the creation of Fonterra. A lot has changed since then. In 2015/16 the Commerce Commission reviewed the state of competition in the dairy industry. This review was built on that analysis by taking a more strategic focus and look at the effectiveness and impact of the DIRA across a range of areas. This includes incentives or disincentives the DIRA creates for the dairy industry to transition to:

  • higher-value dairy production and dairy processing that global consumers seek for a premium
  • more sustainable environmental practices on and off-farm.

Find out more

Where we're up to

As at June 2019, we're at Stage 3. Government has now made policy decisions that will be implemented to amend the DIRA. You'll have an opportunity to comment on government decisions as the Bill progresses through Select Committee.

Policy recommendations

We've released information about the policy recommendations for regulatory changes to the DIRA, and about what will happen next. 

Expand All
The changes

Expand this box to find out about the policy recommendations and what's happening next.

Background

The DIRA was enacted in 2001 to enable the formation of Fonterra in order to drive the New Zealand dairy industry’s economic performance in global dairy markets, and regulate Fonterra’s dominance domestically, for the long-term interest of New Zealand dairy farmers, consumers and the wider economy.

In 2019, Cabinet decided to make changes to the DIRA to ensure that it remains fit for purpose and is effective at promoting the best outcomes for all New Zealanders.

As with any law change, a majority of Parliament must vote in favour of the changes before they become law. You'll have an opportunity to comment on government decisions as the Bill progresses through Select Committee.

What the changes are for

Changes are needed to ensure:

  • better management of on-farm performance
  • planning for processing capacity
  • increased certainty around milk price calculation
  • removal of unnecessary regulation
  • protection of consumer interests, and
  • certainty around future regulatory review.
How we'll achieve this

To achieve these objectives, the following changes have been proposed:

  • Retain the open entry and exit provisions, including the non-discrimination requirement, to manage ongoing risks arising from Fonterra’s large size and scale in New Zealand dairy markets.
  • Allow Fonterra to refuse milk supply from farmers in circumstances where milk is not compliant or unlikely to comply with Fonterra’s terms and standards of supply or is supplied from newly converted dairy farms.
  • Clarify that Fonterra’s terms of supply can relate to, and price differentiate on the basis of, various on-farm performance matters, including environmental, animal welfare, climate change and other sustainability standards.
  • Limit Fonterra’s discretion in regard to setting a key assumption in calculating the base milk price, the asset beta.
  • Require Fonterra to appoint one member of its Milk Price Panel on the nomination of the Minister of Agriculture.
  • Clarify that Fonterra can pay a farm gate milk price that differs from the calculated base milk price.
  • Remove the requirement for Fonterra to supply regulated milk to independent processors with their own supply of 30 million litres or more in a single season.
  • Update the terms on which Fonterra supplies regulated milk to Goodman Fielder for the benefit of domestic consumers.
  • The DIRA regime shall be reviewed on a six-yearly basis, to provide regulatory certainty.

Cabinet decisions [PDF, 161 KB]

Cabinet paper [PDF, 1.8 MB]

Regulatory impact assessment [PDF, 7.4 MB]

Cabinet paper – Appendix 2 [PDF, 2.1 MB]

Where the proposed changes came from

In 2018, the Minister of Agriculture announced a review of the DIRA and its impact on the dairy industry. MPI conducted the review.

The Minister released Terms of Reference for the review in May 2018. Formal public consultation took place from 2 November 2018 to 8 February 2019. MPI engaged with stakeholders including dairy processors, farmers, NGOs, iwi, and financial institutions.

MPI received 188 submissions. These helped to form the final proposed changes.

Report commissioned

MPI also commissioned a report from Frontier Economics to help inform on the proposed changes.

What happens next

The Parliamentary Counsel Office will draft a bill and amendments to the relevant regulations. The proposed law will then be introduced to Parliament and go to a select committee for further consultation and examination. The committee will report its findings to Parliament. Then, Parliament will vote on whether to accept the proposed law changes.

The Select Committee process provides another opportunity for people to have their say on the government’s decisions. We will update this webpage to let people know when the Select Committee calls for submissions.

Find out more

Stages of the DIRA review process

Key stagesIndicative timing

Public release of the terms of reference

May 2018
Stage 1: Determining facts and building evidence 
Issues identification:
  • Initial stakeholder meetings
  • Analysis of issues and identification of options
May to August 2018  
Stage 2: Considering options for change 

Options identification:

  • Development of consultation document
  • Release of the consultation document
  • Public consultation
  • Analysis of submissions
  • Regulatory Impact Analysis
September to December 2018    

Final report to Government:

  • Overall findings of the review
  • Policy recommendations for regulatory change
Early 2019  
Stage 3: Implementation of review's findings 

Legislative change process:

  • Drafting of the Bill
  • Parliamentary processes
During 2019  

Background

In 2001, the DIRA allowed the creation of Fonterra through a merger between the 2 largest dairy cooperatives of the time and the New Zealand Dairy Board. The DIRA provides a framework to regulate the activities of Fonterra as a dominant dairy processor, including monitoring of its farm gate milk price setting processes. It also provides for the dairy export quota management system and regulates herd testing and the dairy core database.

In 2015/16, as a statutory requirement, the Commerce Commission did a review of the state of competition in the dairy industry. Further to recommendations in the report, the previous Government proposed changes related to competition in the sector. However, these were not considered by Parliament and were therefore not implemented.

On 19 December 2017, the Government announced a comprehensive review of the DIRA and its impact on the dairy industry.

In February 2018, the Dairy Industry Restructuring Amendment Bill (No 2) was introduced to prevent the DIRA's efficiency and contestability provisions from expiring in the South Island to allow time for a comprehensive review.

Staying in touch

If you have thoughts or comments on the review, or you would like to get DIRA updates, email dira@mpi.govt.nz

 

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