A review of the deregulation of the New Zealand town milk industry

Abstract

The New Zealand town milk industry, as it has become known, was established as an entity in 1944. Prior to that time, milk supply to the urban areas was of variable quality and dependability. In order to improve the quality of supply, legislation was enacted which established the New Zealand Milk Board. The Board had the responsibility to control and regulate the industry with the objectives of improving milk quality and ensuring an adequate supply of milk to consumers on a year round basis. In order to do this, a quota system was established under which farmers guaranteed to supply high quality milk on a year round basis in return for a guaranteed price. If the supply was not maintained, penalties were imposed. The quotas for each area were set by the Milk Board. In addition, the Milk Board licensed milk processors in each area to receive the milk and arrange the supply to consumers. Milk vendors were appointed by the processors but were under the quality control of the Milk Board. Milk processors were responsible to the Board for the supply in their areas. Decisions on processing and other than normal day to day management matters were made by the Milk Board. During 1985, this system came under review by the Industries Development Commission. As a result of the report of the Commission and consequent discussions with the industry, the Government introduced legislation which came into effect on 1 April 1988 which partially deregulated the town milk industry. The Milk Board was discontinued and replaced by the New Zealand Milk Authority. The purpose of the Act (Milk Act 1988) was to provide for the continued home delivery of milk; and to reduce in other respects the regulation of the processing, supply, and distribution of milk for human consumption. Milk processors are now free to acquire milk in what ever way is most suitable to them. The quotas are now the responsibility of the milk processors. However, Milk Authority functions are (inter alia) to license milk processors, to allocate home delivery districts and to influence retail price competition. This means that the town milk industry is only partially deregulated. Obtaining milk from farmers has been completely deregulated but the processing and marketing of that milk is still subject to controls. As a result of the changes in the legislation, and in the case of packaging, prior to the legislation changes, there have been some significant developments in the town milk industry. Cartons and plastic bottles are now available as well as the traditional 600 ml glass bottle. There is some evidence that milk sales have increased since the introduction of alternative packaging. In the upper part of the North Island, the New Zealand Cooperative Dairy Company (NZCDC) has become the major force in the town milk industry through takeovers of smaller town milk processing companies. Some of the smaller processing plants have been closed and some town milk farmers are in the process of having their quota removed. Other are opting to move into factory supply rather than town supply. There is an increasing move towards the introduction of winter milk supply contracts with quotas being discontinued. This will lead to some herds being calved in Spring and others in Autumn. It has been suggested that this may lead to increased variation in milk quality as the town milk is drawn from different parts of the lactation time. Combining of milk powder and UHT milk with fresh winter milk has also been suggested as a possible option for winter supply. To date, the partial deregulation of the town milk industry has resulted in significant company ownership changes in the northern part of the North Island, some changes in the supply arrangements in that area, some consolidation of processing plant ownership in the southern North Island and very little change in the South Island. Continuing the industry monitoring process in order to identify the impact of deregulation should be a priority for future research.