The Primary Production Committee has examined the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill and recommends that it be passed with the amendments shown.

Introduction

The main purpose of this bill is to extend the market share thresholds for the expiry of the pro-competition provisions in subpart 5 of the Dairy Industry Restructuring Act 2001. It also provides for a new process for the expiry of the Act’s pro-competitive measures when specified market thresholds are reached.

Offence provision for failure to comply with information disclosure requirements

We recommend the insertion of new clause 3A to include an offence provision for occasions where there is a failure without reasonable excuse to comply with the requirement to collect and or provide any specified information in section 147(4).

The bill would require processors to keep a record of, and provide if requested, certain information that is necessary in order for the Minister to determine when the market share thresholds have been met.

We believe these information disclosure requirements should be subject to the same penalties as other similar requirements currently in the Dairy Industry Restructuring Act.

We understand that the new definition of “dairy farm” in section 147(5) is consistent with the principal Act.

Inclusion of West Coast in South Island market share threshold

Under the Act, milk collected from within the boundaries of what is now the West Coast Regional Council is excluded from the South Island market share threshold. We recommend amending clause 4 (section 147) so that milk collected from within the boundary of the West Coast would be included in the calculation of the South Island market share.

When the Act was introduced, it was considered uneconomical for independent processors situated on the West Coast to purchase milk from farmers in other areas of the South Island and transport it across the Southern Alps.

Independent processors can now economically collect milk outside the boundaries of the West Coast and transport it back to their plants. We note that developments in rail transport have lowered the cost of transporting milk across the Alps, to the point where the South Island is effectively already a single market.

Analysis of the South Island market also indicates that Canterbury farmers regularly approach West Coast independent producers offering to supply them, and that West Coast farmers have been canvassed by processors in other parts of the South Island about the likelihood of supplying them. We believe these elements demonstrate that there is a single market for raw milk in the South Island.

Timing and mechanics for competition review and process for expiry

The bill would require the Minister to request a report on the state of competition in New Zealand when the market share thresholds are met in either the North or the South Island. There is no time limit by which the report must be completed. We recognise that having no deadline for the report to be completed could result in uncertainty for the dairy industry whilst it waits for the review’s recommendations and the Minister’s response.

New section 148(2)(a) provides for a specific time of twelve months within which the report would be required to be provided to the Minister.

We further recommend amending clause 4 (insertion of new sections 148A and 148B) to set out the requirements for the completion of the review, and to provide for an appropriate body to be appointed to perform the review.

New section 148A would require the Minister to request the report on the state of competition in the dairy markets either when the threshold of 80 percent is reached in one of the islands, or in 2015, whichever takes place first. This would cater for the possibility that a report is not requested before 1 June 2015; the Minister would be required to then request that the report be carried out.

New section 148B sets out the procedure that would be required to be followed where the market share threshold has been met after the Minister’s request of the report under proposed new section 148A.

To ensure that the Minister of the day has maximum scope to appoint the most appropriate body to undertake the analysis of the state of competition in the dairy market, we recommend a further amendment to clause 4 (new section 148(9)) to broaden the definition of “any other relevant government agency”.

Review of legislation

While the committee has focussed on making interim changes, we are aware that the Minister has announced a comprehensive review of the legislation.

Appendix

Committee process

The Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill was referred to the committee on 14 October 2010. The closing date for submissions was 11 November 2010. We received and considered 13 submissions from interested groups and individuals. We heard eight submissions.

We received advice from the Ministry of Agriculture and Forestry.

Committee membership

Shane Ardern (Chairperson)

Hon Jim Anderton

Brendon Burns (to 9 February 2011)

Dr Ashraf Choudhary

Craig Foss

Sandra Goudie

Colin King

Moana Mackey (from 9 February 2011)

Hon Damien O’Connor

Key to symbols used

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Hon David Carter

Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill

Government Bill

223—2

The Parliament of New Zealand enacts as follows:

1 Title

This Act is the Dairy Industry Restructuring (New Sunset Provisions) Amendment Act 2010.

2 Commencement

This Act comes into force on the day after the date on which it receives the Royal assent.

3 Principal Act amended

This Act amends the Dairy Industry Restructuring Act 2001.

3A Offences

Section 118(1) is amended by adding “; or” and also by adding the following paragraph:
- “(c) fails, without reasonable excuse, to comply with any requirement of section 147(4).”

4 New sections 147 to 149 substituted

Sections 147 to 149 are repealed and the following sections substituted:
“147 Minister to certify that market share thresholds met

“(1) Subsection (2) applies if the Minister is satisfied, on the basis of the information reported to the Minister under subsection (4), that independent processors have, directly or indirectly, collected—

“(a) 20% or more of milksolids ~~from dairy farmers~~ on or from dairy farms in the North Island of New Zealand in a season; or

“(b) 20% or more of milksolids ~~from dairy farmers~~ on or from dairy farms in the South Island of New Zealand ~~outside the boundaries of the West Coast Regional Council~~ in a season.

“(2) If this subsection applies, the Minister must, as the case may be, sign a certificate that states that—

“(a) the market share threshold for the North Island of New Zealand has been met; or

“(b) the market share threshold for the South Island of New Zealand has been met; or

“(c) the market share thresholds for the North Island of New Zealand and the South Island of New Zealand have been met.

“(3) A certificate signed by the Minister stating that 1 or both market share thresholds have been met—

“(a) is conclusive evidence of that fact; and

“(b) must be published—

“(i) in the Gazette; and

“(ii) on the Ministry's Internet site.

“(4) For the purposes of subsection (1), new co-op and each independent processor—

“(a) must, in the form prescribed by the chief executive by notice in the Gazette and published on the Ministry's Internet site, but subject to any exemptions granted in the notice, keep a record of the total amount in kilograms of milksolids collected ~~from dairy farmers~~, directly or indirectly, on or from dairy farms in—

“(i) the North Island of New Zealand in each season; and

“(ii) the South Island of New Zealand ~~outside the boundaries of the West Coast Regional Council~~ in each season; and

“(b) must, if requested by the Minister, provide the information specified in paragraph (a) to the Minister,—

“(i) in the case of a season that has ended, within 30 days after the request; and

“(ii) in the case of a season that is yet to end, within 30 days after the end of the season.

“(5) For the purposes of this section, dairy farm means a farm in New Zealand that produces milk from dairy cows as a business or part of a business.
“148 Subpart ceases to apply to island that meets its market share threshold

“(1) If the Minister has signed a certificate under section 147, the Minister must, as soon as practicable and in consultation with the Minister of Commerce,—

“(a) request a report on the state of competition in the New Zealand dairy industry from—

“(i) the Commerce Commission; or

“(ii) any other relevant government agency; and

“(b) determine the terms of reference for the report; and

“(c) publish the terms of reference on the Ministry's Internet site.

“(2) The terms of reference must, in addition to any other matters that the Minister considers appropriate,—

“(a) specify the date by which the report must be completed, which must be a date within 365 days after the date of a request made under subsection (1)(a); and

“(b) specify the scope of the report, having regard to—

“(i) the structure of the New Zealand dairy industry; and

“(ii) any specific competition concerns in any specified New Zealand dairy markets; and

“(c) specify the person or persons in the dairy industry who must be consulted and the method of consultation; and

“(d) require the Commerce Commission or other relevant government agency (as the case may be) to ascertain—

“(i) the state of competition that exists in the New Zealand dairy industry; and

“(ii) if the Commerce Commission or other relevant government agency (as the case may be) determines that the state of competition in the New Zealand dairy industry or any specified New Zealand dairy market or markets is insufficient,—

“(A) whether either or both of the market share thresholds specified in section 147 should be reset; and

“(B) the options for a transition pathway to deregulation (if any) and~~, if any,~~ whether a particular option or a set of options (if any) should be pursued.

“(3) The Minister must, within 90 days after receiving the report, give, in the Gazette and on the Ministry's Internet site, notice ~~that sets~~ setting out the Minister's response to the report, including (but not limited to) whether the Minister intends to promote the enactment of legislation that resets either or both of the market share thresholds specified in section 147 or to promote the adoption of measures that provide a transition pathway to deregulation, or to promote both.

“(4) Regardless of the Minister's response to the report, if notice is given under subsection (3), the Governor-General must, by Order in Council, declare,—

“(a) in the case of one island meeting its market share threshold under section 147, that this subpart (except sections 104, 105, and 110 to 146) ceases to apply to that island; or

“(b) in the case of both islands meeting their market share thresholds under section 147 (including the case in which the other island meets its market threshold after notice is given in respect of an island under ~~section 147(3)~~ subsection (3) but before the Order in Council is made), that this subpart (except section 134) ceases to apply to both islands.

“(5) If the Governor-General makes an Order in Council under subsection (4)(a) and the Minister subsequently certifies that the other island has also met its market share threshold under section 147, the Governor-General must, by Order in Council, declare that this subpart (except section 134) ceases to apply to both islands.

“(6) An Order in Council made under subsection (4) or (5)—

“(a) must specify the date on which this subpart (apart from any exceptions) ceases to apply to the relevant island or islands (as the case may be), which may be no later than the end of the season that begins after the date on which the Order in Council is made; and

“(b) must come into force on or before the date specified in paragraph (a); and

“(c) may not be amended or revoked (except under section 16 of the Acts and Regulations Publication Act 1989).

“(7) Any failure to comply with subsection (2) or (3), or any error or omission in the report produced by the Commerce Commission or other relevant government agency (as the case may be), does not affect the validity of an Order in Council made under subsection (4) or (5).

“(8) To avoid doubt,—

“(a) if the Minister requests a report from the Commerce Commission under subsection (1), the Commerce Commission may exercise any of the powers specified in the provisions listed in section 145 to determine the state of competition in the New Zealand dairy industry:

“(b) consultation, other than the consultation specified in subsection (1) or (2), is not required:

“(c) the report and its contents are not binding on the Crown:

“(d) if, in relation to subsection (4)(b) or (5), the other island meets its market share threshold at any time after the Minister requests a report under subsection (1), a new report in relation to the other island is not required:

“(e) nothing in this section is intended to—

“(i) create any rights or protections in relation to any person or group of persons; or

“(ii) confer any rights or protections on any person or group of persons.

“(9) For the purposes of this section, other relevant government agency means any agency of the Crown (other than the Commerce Commission), whether a department, a corporation, a Crown entity, a Crown Research Institute, or another organisation or instrument.
“148A Report required if not requested before 1 June 2015

“(1) This section applies if the Minister has not requested a report under section 148 before 1 June 2015.

“(2) If this section applies,—

“(a) the Minister must, as soon as practicable and in consultation with the Minister of Commerce,—

“(i) request a report under section 148(1)(a); and

“(ii) comply with section 148(1)(b) and (c), (2), and (3); and

“(b) section 148(8)(a) to (c) and (e) apply in respect of the report referred to in paragraph (a).
“148B Procedure where market share threshold is met after report requested under section 148A

“(1) This section applies if the Minister has requested a report under section 148A and subsequently signs a certificate under section 147.

“(2) If the report requested under section 148A—

“(a) has not been completed before the Minister signs the certificate under section 147,—

“(i) the report must be completed in accordance with section 148A; and

“(ii) section 148(4) to (8) apply, with any necessary modifications:

“(b) has been completed before the Minister signs the certificate under section 147,—

“(i) the Minister may not request another report under section 148 or 148A; and

“(ii) the Minister must, within 90 days after signing the certificate, give notice, in the Gazette and on the Ministry's Internet site, as to whether the Minister intends to promote the enactment of legislation that resets either or both of the market share thresholds specified in section 147 or to promote the adoption of measures that provide a transition pathway to deregulation, or to promote both; and

“(iii) section 148(4) to (8) apply, with any necessary modifications.
“149 Subpart expires if both islands meet their market share thresholds

“(1) This subpart (except section 134) expires on the date that this subpart ~~ceases to apply to both the North Island of New Zealand and the South Island of New Zealand.~~—

“(a) ceases to apply to the North Island of New Zealand; and

“(b) ceases to apply to the South Island of New Zealand.

“(2) Section 134 expires 2 years after the date that this subpart ceases to apply to both the North Island of New Zealand and the South Island of New Zealand.

“(3) Regulations made under section 115 or 116 are revoked on the expiry of this subpart (except section 134).”

Legislative history
6 October 2010	Introduction (Bill 223–1)
14 October 2010	First reading and referral to Primary Production Committee

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Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill