The Government is extending rules which assist dairy companies to compete with Fonterra but has promised to address criteria under which Fonterra has to supply milk to its competitors.
Fonterra has welcomed the review of its requirement to supply milk to competitors, but was disappointed the DIRA regulations will be extended.
Agriculture Minister David Carter announced yesterday that the Dairy Industry Restructuring Act (DIRA) would be extended to preserve competition for farmers and dairy consumers and that included adjusting market share trigger points.
"At this point, the Government is not confident there would be sufficient competition in the dairy industry to protect the long-term interests of farmers and consumers," he said.
"The Government has agreed to set new triggers at a Fonterra market share of 80% in the North Island and in the South Island, excluding the area covered by the Westland Regional Council."
Fonterra has been unhappy at having to supply 5% of the milk it collects (about 600 million litres annually) to competitors, saying the price they received was effectively a subsidy to their competitors.
Chief executive Andrew Ferrier said Fonterra supplied milk to 25 companies under DIRA, and while he accepted that role in assisting start-up companies, a significant amount of milk was going to larger companies which have their own milk supply, were increasingly foreign owned and competing with Fonterra in overseas markets.
"All these competitors use the DIRA regulations to fill their processing plants at times of the year when milk supply is low."
The Ministry of Agriculture and Forestry had estimated triggers at which DIRA regulations would cease could be reached in 2013, but has now extended that by increasing the market share competitors must gain from Fonterra to 20%.
Previously the South Island trigger was competitors collecting at least 65 million kg of milk solids, with one independent processor collecting 25 million kg/ms.
Westland was excluded from the calculation.
The North Island trigger was when an independent processor collected 12.5% or more of milk solids.
Mr Carter said the extension to DIRA took into account impending changes to Fonterra's capital structure.
