Changes to the Dairy Industries Restructuring Act (DIRA), tabled by New Zealand’s Primary Industries Minister Nathan Guy, will give Fonterra discretion to accept or not shareholder applications for new dairy operations from the 2018/2019 season.

Under the present DIRA, Fonterra is obligated to accept all milk offered, which it said is no longer necessary or efficient. The news comes as members of other co-ops have threatened to move to Fonterra as its milk price rises faster than competitors’.

In a separate development, New Zealand’s Dairy News magazine reported this week that Fonterra chairman John Wilson hinted at the possibility of overseas suppliers becoming shareholders in the co-op. Fonterra is currently owned entirely by New Zealand farmers, with the average shareholding worth €574,000. However, it sources nearly a quarter of its milk outside the country.

Wilson reportedly said that “some sort of co-operative linkage” was possible with overseas suppliers. “It won’t be easy – surprise, surprise – but is certainly possible. My view is that those opportunities are becoming more real today than in the past,” Wilson added.

Fonterra’s obligation to sell regulated milk to be relaxed

The new DIRA bill also proposes to drop Fonterra’s obligation to sell regulated raw milk to large export-focused processors from the 2019/2020 season. The original DIRA created an obligation for Fonterra to sell raw milk to its competitors because of its market domination in New Zealand.

In 2015, independent processors collected 22% of all milk solids in the South Island and 9% in the North Island. This would have triggered the abolition of the system in the South Island next year under the old DIRA regime.

The proposed legislation will retain regulated milk, but Fonterra will no longer be forced to so-called regulated milk to the largest, most established of its competitors. It also reduces the flexibility rival processors have in projecting the volumes of regulated milk they want to buy from the start of the 2018/2019 season.

The proposed legislation plans for a new reform of DIRA in 2020/21.