Review of the Dairy Industry Restructuring (Raw Milk) Regulations: Options for addressing industry concerns April 2008
Executive summary
The Review of the Raw Milk Regulations (the Review) has provided a timely and useful opportunity to re-examine the principles behind the Raw Milk Regulations (the Regulations) and allowed, where necessary, additional analysis to take place.
The Ministry of Agriculture and Forestry (MAF) was pleased by both the quantity (39) and quality of written submissions associated with the first discussion document Review of the Dairy Industry Restructuring (Raw Milk) Regulations: Clarifying Industry Concerns and the Regulations’ Intent (MAF 2007). The diverse range of submitters has also ensured broad industry and stakeholder representation, which has fed directly into the development of options.
This document outlines three options.
Option 1 is based upon the regime that was in place until 2006/07. It entails total supply of 400 million litres and incorporates a series of rules to manage excess demand.
Option 2 is based upon the 2008/09 regime. This entails total supply of 600 million litres and also incorporates rationing rules should excess demand arise.
Option 3 is similar to the second option with the exception that an auction mechanism is used to manage excess demand.
Option 3 is the preferred option. The reasons for favouring option 3 are:
- that it is the option mostly likely to ensure regulated milk is fairly and efficiently priced;
- that it is the option most likely to result in a smooth transition to the time when the legal obligation on Fonterra to provide regulated milk ceases (based on current and planned investments, this could occur as soon as 2013 [and potentially sooner]).
In all cases, the Fonterra farm gate milk price is the minimum price for regulated milk and will replace the current formula for deriving the regulated or “default” milk price. In the cases of options 1 and 2, an additional premium, X, will be calculated formulaically and stated in regulations.1
In the case of option 3, the Fonterra farm gate milk price will be the reserve price, with X discovered via the auction process.
Detailed feedback is sought on all three options. Feedback is also sought on two additional issues that arose during the first consultation round: the pricing of winter milk and the “20% rule”.
The new regime resulting from this Review will take effect in the 2009/10 season.
This Review also satisfies the Government’s commitment to investigate the concerns raised by the Regulations Review Select Committee, which recommended on 22 August 2007 that the pricing formula in the Regulations be amended in a particular way.
1 X incorporates attributes such as risk and supply chain management costs that an independent processor either would – or should – pay for in a competitive market.
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Principal Advisor
MAF Policy
Sector Performance Policy
Ph: 04 894 0128
Fax: 04 894 0745
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