Do rules for Fonterra in the domestic milk market need ‘critical lens’ - or abolishing?

Wednesday, 22 July 2026

A Government review into whether rules that ensure Fonterra’s dominance make the domestic milk supply market uncompetitive should apply a “critical lens” to the issue, its main domestic rival says.

But a prominent dairy industry commentator told The Post that it was “deeply ironic and incredibly rich” for Open Country, which does not supply the domestic market - and has just built a new butter factory which is 100% for export - “to be waving the banner of domestic competition as a reason to keep Fonterra shackled”.

The stoush takes place amid a review into the Dairy Industry Restructuring Act (DIRA), which aims to keep Fonterra’s massive market monopoly position in check.

Minister of Agriculture Todd McClay published the terms of reference for the statutorily required review on DIRA three days ago, ahead of deliberations on whether the rules that regulate Fonterra “remain necessary, fit-for-purpose, and achieve net benefits for our dairy sector”.

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Fonterra takes just under 80% of all the milk produced while Open Country, which is the second largest milk processor, holds about a 12% share. Open Country believes any effort to unwind the regulatory powers of the Dairy Industry Restructuring Act (DIRA), might leave farmers with fewer options of where to send their milk.

Two rounds of stakeholder consultation will take place before the assessment is tabled in Parliament by June 1, 2027.

Some of those guardrails include things like preventing Fonterra from artificially manipulating the price of raw milk, mandating it allocates up to 5% of its total seasonal milk pool to eligible independent processors at a regulated default price, and forcing a nationally uniform base milk price among other things.

Open Country chief executive Mark de Lautour said it was concerning that the review’s Terms of Reference refer to DIRA as “red tape”.

“This fundamentally misrepresents the importance of DIRA, given Fonterra was created as a monopoly by the government and continues to hold an extraordinarily dominant position.

“DIRA was put in place 25 years ago to manage the significant risks that came with creating a dairy monopoly. Each time the government has reviewed this key pro-competition framework the mechanisms designed to protect farmers, consumers and the industry at large have been weakened,” de Latour said.

“While DIRA has enabled incremental shifts toward a workably competitive market, this should not lead to complacency and further weakening of DIRA.”

Fonterra’s collection of national milk supply has dropped from 96% in 2001 to just under 78%, while Open Country takes the bulk of the rest, growing its share in recent years through the acquisition of Miraka and Mataura Valley Milk. Others including Synlait, China’s Yili Group, which owns Oceania Dairy & Westland Milk Products, and Tatua and other even smaller processors take the rest, none of them taking more than 4%.

Companies like Goodman Fielder (which processes household consumer brands like Meadow Fresh milk and Tararua cheese) receive regulated wholesale milk allocations provided under DIRA rules to create other brands in the marketplace.

While Fonterra’s market share has dropped, it remains farmers’ only choice of processor in certain areas of the country, including Northland, and places like Hawke’s Bay and Wairarapa where dairy farming density is low.

De Latour said Fonterra’s sale of its consumer brands to Lactalis this year “fell short of one of the original goals of DIRA to enable a strategic shift toward value-added processing of New Zealand’s milk.

“But there is still a direct connection between how Fonterra behaves and what Kiwis pay at the checkout,” he said, adding the new owner, “motivated to drive a return on investment”, was not subject to DIRA’s guardrails.

But Craig Hickman, an Ashburton-based dairy farmer and rural media commentator, said DIRA should be abolished altogether.

He said the rules did fail the country as far as domestic competition went, not through any fault of Fonterra’s but of the legislation.

He took aim at Open Country, saying the company was started with Fonterra milk taken under DIRA rules, and they exported 100% of that milk. The company, he said, wanted the playing field tipped in its favour.

Its criticisms of Fonterra were “very rich coming from people who do not support New Zealand production in any way to be banging on about domestic competition,” he said.

“Maybe Open Country would like to come to the party and pledge 5% of their production as well.”

Not everyone agreed, however. Lincoln University senior lecturer in agribusiness management at Lincoln University, Dr Nic Lees, said Open Country was not arguing for an open-ended entitlement for large established processors, but defending the availability of that protection for new and smaller entrants trying to get established.

“My reading is that Open Country is trying to push back against any assumption that DIRA is now just outdated regulation. Their position is that the safeguards still matter because Fonterra remains highly dominant.

“My interpretation is that Fonterra’s long-running push to reduce these raw milk supply obligations suggests it remains wary of any meaningful erosion of its market share and the competitive position that comes with it.”