SPEECH NOTES: HON JOHN LUXTON - FOR THE SECOND READING OF THE DAIRY INDUSTRY RESTRUCTURING BILL

14 JULY 1999

Mr Speaker, I move that the Dairy Industry Restructuring Bill now be read a second time. This Bill was introduced into the House on 14 July 1999 and I seek that it be referred to a special Select Committee for further consideration.

As members know, I have a long standing interest in the dairy industry, both from a personal perspective as a dairy farmer and as a member of the Government seeking to ensure that wealth in the dairy sector is maximised.

The Government's overall objective is to maximise the economic welfare of New Zealand. This overall objective is achieved by policies that facilitate the efficient use of resources across the economy. The growth of an internationally competitive export sector, of which the dairy industry is a significant part, is a key component of the Government's policies.

This legislation addresses public policy issues and Government has adopted a balanced approach using existing generic law as the foundation.

This Bill will allow the dairy industry to operate within the framework of general competition and governance laws and allow the industry to evolve to a more efficient, dynamic and robust future.

This Bill provides for:

The repeal of the Dairy Board Act 1961, with effect from 1 September 2000, conditional on an amalgamation of a number of dairy co-operatives being authorised by that date. The full entry into effect of the legislation is dependent upon Commerce Commission authorisation of a large-scale merger of the dairy industry enterprises - the amalgamation commonly known as the Mega Co-op.

The conversion of the NZDB to a company using Schedule 5 of the Dairy Board Act 1961.

With regard to markets with tariff quotas and similar restrictions, the Bill makes arrangements that will maximise benefits to New Zealand farmers while phasing out unnecessary barriers to competition in the export of dairy produce to these markets.

The new co-op will have exclusive export rights limited to designated markets and product combinations for an initial period of six years.

From 1 April 2010 following a 3 year phased transition, the rights to all designated markets will be allocated to a new farmer owned company. This company will allocate rights on a competitive basis and treat all exporters equally. From the outset, the rights to any new designated markets, or increases in available market access for existing designated markets will be available on a competitive basis.

The Bill will amend the Co-operative Companies Act 1996 to allow the issue and surrender of capital at fair value and the repeal of sections of the Dairy Industry Act 1952, and Regulation 42 of the Dairy Industry Regulations, which are current unnecessary regulatory barriers to entry.

The Bill also deals with taxation issues and consequential amendments.

Before the plan can be put in place, four steps need to be completed:

1 The participating companies have to conclude their merger agreement;

2 An authorisation from the Commerce Commission is required;

3 Legislation needs to be passed by the House; and

4 Farmers have to consider and agree the proposal at a series of shareholder
votes (the 1st vote requires 75% within each company, and the second, 75% across
all companies on a value basis).

The key in all of this is the need to consult and get farmer agreement.

The issues of competition are for the Commerce Commission to address and this process is yet to be completed by the dairy industry.

It is over to the dairy industry to satisfy the Commerce Commission on competition issues. In particular that there are no undue barriers to entry by new competitors.

Mr Speaker, for some time now one of New Zealand's most important export industries has been constrained by legislation that is not appropriate in today's global food industry. The dairy industry has realised that it needs better returns.

It is heartening that the dairy industry continues to respond positively to the challenges it faces. In recognising the current legislative restrictions to innovation, investment and value being added to farm-gate produce, another positive step has been taken in the evolution of the New Zealand dairy industry.

The dairy industry can look forward to a better future because this Bill provides the greatest opportunity for the industry to innovate, respond to market opportunity, and adjust quickly to market conditions.

A lot of time and work has been taken to develop this Bill. The Bill reflects extensive consultations with dairy industry leaders since November last year. I thank those who have put so much effort into this process. On the Government side, under the leadership of Sir William Birch, and on the industry side, under the leadership of Dairy Board Chairman John Storey, and Chairman of the Joint Industry Committee, Graham Calvert. The Bill will provide the regulatory foundation for the transition to a competitive environment.

The timing and urgency of the Bill conforms with the Industry's timetable. The Dairy Industry estimates that it is foregoing $1 million each day the implementation plan is delayed. There is also considerable commercial risks in.prolonging this process.

It is my intention to refer the Bill to a special Select Committee to be appointed. The personnel and powers of that Select Committee are set out in a Government notice of motion that is on the Table. While I will not be moving the motion at this time the motion is 'that the House appoint a Committee of
nine members to consider the Dairy Industry Restructuring Bill; the Committee to consist of Gavan Herlihy, Owen Jennings, Hon Denis Marshall, Alec Neill, Damien O'Connor, Hon Jim Sutton, R Doug Woolerton, John Wright and Annabel Young; and that the Committee have the authority to meet at any time while the House is sitting, except during questions for oral answer, during an evening on a day on
which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, notwithstanding Standing Orders 200 and 202 and the sessional order of 17 December 1998; and the Committee finally report the Bill on or by 30 August 1999'.

This is an exciting opportunity to make a transition to a new era based on commercial disciplines, competition, innovation and increased wealth for dairy farmers and the New Zealand economy.

I commend the Bill to this House.

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