Federated Farmers' submission on proposed changes to the law governing the dairy sector garnered extra clout among MPs when dairy chairman Chris Lewis outed himself as a non-Fonterra Cooperative Group supplier.
National Party MP Amy Adams questioned whether Federated Farmers was just a mouthpiece for the Fonterra Shareholders’ Council given that most of its members would be Fonterra suppliers due to its dominant market position. While Fonterra currently has 10 competitors operating 15 manufacturing sites across the country, its 10,000 farmer shareholders made up the bulk of dairy farmers.
“I’m just trying to understand in my mind how you ensure that it (Federated Farmers) isn't effectively the Fonterra Shareholders’ Council by another name,” said Adams as Lewis presented the Fed’s submission on proposed changes to the Dairy Industry Restructuring Act.
“We are independent of Fonterra,” said Lewis. “Our executive and dairy councils are made up of many farmers supply many different processors, including myself. I don’t supply Fonterra. We are led very independently,” he added.
This was news to Adams, whose party has strong ties to rural New Zealand. “I didn’t know that,” she said.

Alternative processors

Lewis also pointed out that the Federated Farmers' initial submission earlier this year surveyed 339 farmers of which between 40 and 50 indicated they supply an alternative processor. 
Parliament’s primary production select committee is currently reviewing submissions on proposed changes to the Dairy Industry Restructuring Act, passed in 2001 to set rules to regulate Fonterra’s dominant position after its formation and help foster a competitive market. A government review deemed the law was still fit for purpose but could be better.
Lewis presented Federated Farmers' submission to the committee yesterday.
When questioned why some farmers opt to supply independent processors, he said “it’s like any monopoly. Not everyone loves the monopoly.” He also noted that investing in Fonterra required a massive amount of capital and “banks don’t give that away.”
He was clear, however, that he wanted to see Fonterra succeed. “I supply an independent, but I also want a strong monopoly because they set the milk price. My independent follows it closely, so it’s in my best interest that Fonterra remains strong.”

Benchmarking prices

Lewis said he recently attended an independent supply meeting, and the question from farmers was whether they were going to pay more or less than Fonterra this year. "It is the benchmark. I want them to do well so my processor pays me more," he said. 
Federated Farmers submitted that an “overarching piece of legislation to ensure that there is adequate competition, both in the domestic market for milk products and among processing companies for farmers’ milk” was still needed, but that change was necessary to ensure “Fonterra has the ability to manage its supply in a way that is both fair to dairy farmers and profit maximising for shareholders.”
Currently, Fonterra is compelled to take supply from new or returning farmers – with very few exceptions. The proposed changes would allow it to decline membership to farmers who were not likely to comply with its terms of supply.
Federated Farmers favoured change after a suitable phasing period.

Commercial decision

Lewis told MPs that it should be a commercial decision for the cooperative based on whether they needed supply, rather than carte blanche open entry.
Clearly “it’s more economical to run full factories than half factories and they want to keep the labour force fully employed all year round, so of course (in that situation) they will chase my milk,” he said.
“I’ve gone from Fonterra to independent, so I know how all this plays out and works from a personal perspective,” said Lewis.