Prime Minister John Key says proposed changes in the diary industry may result in cheaper milk and will give consumers confidence they are “not getting ripped off” by Fonterra.

Key this morning rejected claims by farmers that plans to force the dairy giant to provide five per cent of its raw milk to independent producers, up from three per cent, was sending profits offshore by assisting largely foreign-owned New Zealand-based exporters which compete with Fonterra.

Labour’s primary industry spokesman Damien O’Connor has voiced similar concerns. …

Key today said proposed provisions to phase out well-established competitors would alleviate concerns about overseas-owned companies profiting at Fonterra’s expense.

It was in Fonterra’s interest to have competition in the market.

“It’s very important that we have transparency because Fonterra find themselves primarily in a monopoly position, they control about 95 per cent of raw milk production in New Zealand,” he told TV3′s Firstline programme. …

Fonterra chairman Sir Henry van der Heyden has said it is valid for Fonterra to assist domestic market suppliers with milk, but requiring Fonterra to supply overseas-owned competitors “defied logic”.

The extra milk obligation would cost Fonterra $200 million over three years alone, he said. …

Dairy farmer James Houghton, a Fonterra supplier and president of Waikato Federated Farmers, said if Fonterra lost money, farmers’ payouts would be affected.

“I believe it is the Government wanting to control an industry it doesn’t need to control,” he said. “The more rules and regulations, the more control it has.

Hmmn, an interesting situation. On one side you have the Government and on the other side you have Fonterra and Federated Farmers, with some opportunistic backing by Labour. So is the Government doing the right thing or not?

Former Green MP Sue Kedgley, who was a member of the parliamentary select committee looking into milk pricing last year, said the proposals were good steps.

Well that solves it for me. The Government must be wrong!

This will see weekly trade worth around $27m go through the ports of Tauranga and Napier instead of Auckland.

Now readers will recall that the average wage for a FT wharfie in Auckland is $91,000. This is for an unskilled job where training is on the job. But what is POA offering the union?

• a 10 per cent rise on hourly rates
• performance bonuses of up to 20% on hourly rates
• retention of existing benefits and entitlements
• a new roster system that will provide increased operational flexibility while allowing workers to plan their rosters a month in advance

Those slave labour drivers. A 10% increase on hourly rates would push the average FT salary to around $100,000 a year. And 20% performance bonuses is just an evil capitalist divide and conquer strategy. If you start paying staff performance bonuses, then the good staff will end up getting paid more than the bad staff.

iPredict’s first contracts forecasting Fonterra’s payout will be launched on the online predictions market at 3.30 pm today and will be available to its 5000 registered online traders plus everyone else who chooses to join up at www.ipredict.co.nz

The initial contracts will ask traders whether Fonterra’s final 2010/11 payout, per kilogram of milk solids, to a 100 percent share-backed farmer (before retentions), will be above $7.90, above $8.00, above $8.10, above $8.20 or above $8.30.  Traders can buy as many of each contract as they like.

On 24 May this year, Fonterra announced the 2010/11 payout was likely to be in the $8.00 to $8.10 range.

“This first set of contracts will give an indication of in which 10 cent increment the final payout is likely to fall,” the Chief Executive of iPredict, Matt Burgess said today.  “We will then add 2.5 cent increment contracts within the favoured 10 cent range to provide dairy farmers and the wider dairy community with an even more accurate forecast.  Forecasting this way will give both a real-time point estimate and a margin of error.”

The stocks went live on Wednesday. At present the stock for more than $8.125/kg is at 63c and more than $8.150/kg is 43c, so the market is pointing towards $8.13 to $8.15.

New Zealand would be committing ‘collective suicide’ if the government agreed to demands for an independent commission to set the domestic milk price, claims Fonterra chief executive Andrew Ferrier.

“It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around free markets,” Ferrier said in response to industry campaigners taking their call for a milk price regulator to Minister of Finance Bill English. “It would be a massive step back to the dark ages. There are internally established milk prices in the US and Europe and it is commonly known to be their failure. It is everything we have been lobbying against for 30 years [in overseas markets].”

I agree - regulation would undermine our trade policy.

“When governments intervene in industries they cause enormous secondary problems that are not easy to foresee.”

He cited the example of Argentina, about four years ago. When world prices were too high for the domestic market’s liking, the government set a domestic market price.

“Literally within weeks, all the major dairy companies figured ‘we can’t afford to sell at that price’ so they started exporting more. Why wouldn’t they? To stop the exporting [increase] the government put on an export tax … it actually bankrupted some companies. The legal implications are mind-boggling.”

If Fonterra is forced to sell milk for a lower price in NZ, than overseas, then their logical response would be to sell as much as possible overseas, and NZ could even face milk shortages.

Don’t agree with it, but I have to say a pretty damn effective attack ad. I wonder if that is a professional actress – too good to be an amateur I reckon.

However, a director of one of the companies behind the proposals says critics who call it “factory farming” have got it all wrong.

Richard Peacocke was reluctant to be interviewed while involved in environmental hearings related to the applications. However in statements, he said: “Factory farming implies that stock are unduly restricted.

“Each cow will have its own cubicle to stand, sit and sleep. The floor of the cubicle is a thick rubber pad and the cows are free to enter and leave the cubicles at will and wander around the balance of the shed and feed as they require.

“There will be clear roof panels to allow sun and light to enter. Additionally the cows will be free to wander out onto a large open air holding yard during fine weather and stand or sit in the sun.”

Mr Peacocke said the effluent would be collected and stored, with liquid waste watered down and spread on pasture at “very low rates”.

The proposal is for 18,000 cows that will live within the stables (including yard) for eight months a year.

I suspect this is an issue similar to battery hen farming. Around 80% of people will say they don’t like it and would be happy to pay more for free-range egss. But in reality free-range only has 10% of the market.

The bigger concern is if it could undermine the overall NZ dairy brand. This is why Fonterra is against.

Federated Farmers are supportive though, and say this model of farming s more environmentally friendly. I’d be interested in the details of that claim.

UPDATE: Press editorial has some details:

From an environmental point of view, the proposal has a lot to recommend it. Rather than having herds roaming free and leaving effluent to flow where it will, with the risk of pollution to waterways and aquifers, it would, while the cows were under cover at least, be collected for more orderly disposal. While the details of that disposal would have to be scrutinised closely, that is almost certain to be less damaging to the environment.

A video of starving calves is above.

I recommend people go read the story, which is pretty shocking. Extracts:

New Zealand’s biggest privately held dairying operation allowed dozens of calves on one of its massive farms on North Island’s central plateau to slowly dehydrate to death earlier this month, triggering a MAF investigation but no prosecution. …

Poor management and the pressures of massive debts obtained during rapid expansion meant this farm was so poorly managed that none of the staff trained the calves to drink milk, allowing them to die of dehydration in a muddy pen even though their trough was often full.

The Crafers have been prosecuted numerous times on various issues such as releasing effluent into waterways.

After interest.co.nz obtained the video, producer Bryan Spondre and I visited the farm where the calves had been kept to find out more. When we drove up next to the calf shed we were confronted by farm manager Sam Webb. He told us to: “Get the f**k off this property. You have no right to be here.”

Bryan started taking photographs of the shed and Sam Webb manhandled him back into our car before swearing abuse and grabbing at Bryan’s camera.

“I’ll take both of you bastards out,” he yelled.

Webb then punched Bryan through the open window of the car door. The punch was so hard it dislodged Bryan’s contact lens. We drove off and the picture published to the left shows Webb yelling at us as we left: “F**k off you c**ts.”

Where’s the picture of the black eye?

Go read the full story, and the questions Bernard has for MAF and Fonterra.

An excellent piece of investigative journalism.

The Green party has called on the Government and Fonterra to condemn the death sentences handed down in China to two men involved in the tainted milk scandal.

The two men were sentenced to death yesterday while Tian Wenhua, the woman at the head of Fonterra joint venture Sanlu Group, was given a life sentence by a court in Shijiazhuang.

This is no surprise. In fact Phil Goff back in September said it was “almost certain” that those responsible would be executed. Mind you, I thought such a public statement from the then Trade Minister was somewhat unwise, as it could be read as agreement (unintentionally of course).

Carried on Chinese weblogs, the memo, purportedly from Sanlu’s PR company, notes growing numbers of damaging references to the company, which is 43% owned by Fonterra, in connection to infant kidney failures, and lays out strategies for addressing the issue. These included silencing victims, and paying off Baidu, China’s largest internet search engine, to remove negative references from its web searches.

Paying Google not to carry negative references on your comapny – now that could be a lucrative income stream.

Except of course once it got known, Google would lose market share massively.

The memo also said a “PR protection” deal had been negotiated with Baidu, in which Sanlu agreed to buy $640,000 of advertising with the search engine, in return for having negative stories blocked from search results.

Hmmn wonder how much they’ll pay Kiwiblog to remove a negative story. Wouldn’t cost $640,000!

Winston – make an offer

Trade Minister Phil Goff expects severe punishment for those criminally responsible for China’s contaminated milk scandal – but he doesn’t think Fonterra’s representatives at San Lu should join the growing list of arrests made by Chinese authorities.

Fonterra has three directors who sit on the San Lu board and as arrests in the milk powder scandal multiplied yesterday, Mr Goff said it was “almost certain” the people who added the chemical melamine to milk would be executed.

I really don’t know why Goff thought it was necessary to say that, as the Chinese Government could see that as diplomatic code for condoning such executions.