It is a privilege to rise and take a call on the Dairy Industry Restructuring (Raw Milk Pricing Methods) Bill, and I do so at 6 minutes to midnight. I wonder how many people are listening to this debate, and how many New Zealanders are following a debate on the pricing of raw milk at 6 minutes to midnight. So it would be very easy to give up the opportunity to take this call and to shorten this debate.
The reason that I am taking this call is that, as we have heard this evening, the dairy industry is a very, very important part of New Zealand’s economy. We earn a huge amount of foreign currency from the dairy industry—some 27 percent. The Acting Minister of Agriculture, the Hon Dr Nick Smith, led off this debate. He explained that the dairy industry accounts for some 27 percent of New Zealand’s exports and that this bill would allow some several hundred million litres of milk to be opened up to other processors to produce. He talked about opening up contestable markets and how that would allow other people to come into the industry to purchase milk. They would pay a 10c-per-litre premium to secure supply.
I then listened with interest as Mr Damien O’Connor talked about the great work that Shane Ardern had done. Mr O’Connor said he knew that Shane Ardern would fight tooth and nail to protect farmers’ interests. So although this is a third reading debate it has generated into a more general discussion on the dairy industry.
The previous speaker, Brendon Burns, took the opportunity to raise issues not just to do with the pricing of milk but to do with other concerns that confront the dairy industry. For example, Mr Burns talked about the capital restructure of the dairy industry, the potential restructure of Fonterra, and the need to raise new capital. He talked about the potential foreign investments in the dairy industry, and he referred to the recent Chinese proposal to invest in farms. He went on to talk about animal welfare.
I would like to talk about another aspect of the dairy industry, and that is the price of inputs. I would like to bring the debate back to the concept that people who want to purchase milk, other than Fonterra, will have the opportunity to do so at a premium charge of 10c a litre. That figure of 10c a litre is quite interesting, because from 1 July this year the emissions trading scheme comes into place and that is forecast to add 7c a litre to the cost of processing milk. Just as other companies that want to compete in this market will pay a premium, so too will dairy farmers in New Zealand pay a premium for their electricity.
I found it very interesting that the Prime Minister, John Key, would go along to a meeting of the Federated Farmers executive last November to try to assure farmers that they need not be concerned about the surcharges they will pay for their electricity under the emissions trading scheme tax. He told those farmers not to worry, as their dairy stock would not come into the emissions trading scheme until 2015. He said there would be a 5-year period before Mr Shane Ardern would have to fight tooth and nail to protect their interests.
What Mr Key did not tell the Federated Farmers executive was that the cost he was referring to, the cost of the animals, made up only one quarter of the total costs. So only one quarter of what dairy farmers will pay for the emissions trading scheme tax relates to animals. The other three-quarters that the dairy industry will face, the huge proportion of the input costs, will come from electricity, petrol, and the cost of the emissions of those Fonterra plants that we have heard about this evening.
I am told that Fonterra is forecasting that that $25 a tonne will cost it some additional $80 million to process milk. Fonterra is being offered an interim price, a half-price, of $12.50, and that will reduce its costs to $40 million. So starting on 1 July we have an input tax, an additional cost of processing milk for Fonterra alone—and we heard that that is only 84 percent of the market—of $40 million. That is $40 million to come off the price of milk.
Hon Member: The Opposition tried to help.
JOHN BOSCAWEN: I thought that might have been an interjection. I have before me figures from Meat and Wool New Zealand. It forecasts that the additional cost input that dairy farmers will face is some $10,000 for the average dairy herd. Of that $10,000, only $2,500, or a quarter, relates to animal emissions of methane. Of that figure, $7,000 is for electricity, petrol, and Fonterra’s emission costs. Half of that starts on 1 July. We will be the first country to tax our farmers, the first country to charge our farmers extra for their petrol. That does not happen in Europe.
Debate interrupted.