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UPDATE ON DIRA REVIEW AND CHANGES TO DIRA – 6 JUNE 2019

A comprehensive review of the Dairy Industry Restructuring Act 2001 (DIRA) and its impact on the dairy industry was announced in December 2017. Public consultation and meetings finished in February 2019. We've released information about the decisions and changes to the DIRA that this process generated.

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DIRA regulates New Zealand's dairy industry

The 4 key aspects of the dairy industry that the DIRA regulates are:

Fonterra's regulatory requirements

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 farmgate milk price (and monitoring)

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.

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Herd testing and the dairy core database

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).

The data for the database is gathered by certified herd testers. The DIRA provides for the certification regime.

 

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