Fonterra under fire over pro-rail submission

Fonterra has received a taste of what politicians might face this year as they go back to their constituents seeking votes for rail funding over roads, Dileepa Fonseka reports

Fonterra got more than it bargained for today as it voiced support for a new funding model that could see road users pay for rail improvements.

“What do you think your 10,000 farmer shareholders would say….how are they going to feel about this position to shift funding, that they all pay individually, into rail?”

The company's representatives were forced to draw distinctions between their support of more money for rail with objections that cash would come at the expense of their own shareholders at a Transport and Infrastructure Select committee meeting on Thursday.

National MP and Transport spokesman Chris Bishop said he found Fonterra’s submission “astonishing”, while National MP for the Waikato, Tim van de Molen, questioned whether Fonterra’s support for rail chimed with the interests of farmers.

“What do you think your 10,000 farmer shareholders would say, in relation to your comments that you should be shifting that focus from roading investment….how are they going to feel about this position to shift funding, that they all pay individually, into rail?” van de Molen said.

The discussions further highlighted a major trade-off in the Land Transport (Rail) Legislation bill that was raised by several players in the infrastructure community even before the bill made its way to select committee.

Rail will have access to much-needed funding through the National Land Transport Fund under the bill. The NLTF is currently funded through fuel taxes and road user charges, but rail will pay into it in the form of track user charges.

"Quite quickly, within the next decade, [we are] going to get to the point where we've run out of options to fund our transport properly."

However those track user charges will likely be low because high charges would discourage rail use. That means road users could end up subsidising the improvement of rail lines. 

Infometrics economist Brad Olsen told Newsroom, after the select committee, that the discussion demonstrated New Zealand needed to completely rethink its transport funding models.

"Quite quickly, within the next decade, [we are] going to get to the point where we've run out of options to fund our transport properly."

Many submitters, including the Automobile Association and the Road Transport Forum, agreed more investment was needed for rail, but opinion was more divided on whether road users should be a source of that funding. 

Big users of KiwiRail

Fonterra is KiwiRail’s largest customer and uses rail to ship its finished goods around the country, and often to seaports where they are exported, but uses trucks to transport milk from farm to processing station.

Half of its finished goods business uses rail and the company foresees that it could shift more of that business from truck to rail if there was more investment in the network. 

Speaking to Newsroom after the company presented its submission Haley Mortimer, manager for NZ Government Affairs at Fonterra, said farmer shareholders came first and the company was not making a submission that favoured road over rail. 

“We are speaking on behalf of KiwiRail’s global supply chain team. Currently we are KiwiRail’s biggest user that transports products from manufacturer to market, whether that’s around New Zealand or to our offshore markets,” Mortimer said.

However, Mortimer acknowledged there was a “risk” of cross-subsidisation of rail by road users in a small market like New Zealand. 

'We're going to need to get the money from somewhere'

Infrastructure NZ CEO Paul Blair told Newsroom the pot of money that came from fuel taxes was finite and not enough for rail, but the country needed to invest in both.

"I can't see a situation where we've over-invested in transport, so yes we are going to need more money from somewhere," Blair said.

Infrastructure NZ has suggested a clear long-term funding stream should be provided for rail through general taxation.

Olsen said there was a large gap between roading and rail infrastructure and an "oversized" investment from the public sector was needed to make it a viable alternative to road transport. 

Infrastructure NZ CEO Paul Blair says New Zealand is going to need to get its money for transport investments from somewhere. Photo: Lynn Grieveson

Rail investment took trucks off the road but the effect of rail improvements often weren't seen by the public, which made public buy-in harder, Olsen said. 

However, New Zealand also needed to rethink its attitude to transport funding and the funding system, he said.

"We don't pay a set of money for schooling in this country per parent, and if we don't get that exact amount of money into our school versus someone else's school we don't get all up in arms about it," Olsen said.

"That's partially to do with the funding system so I do think we need to reconfigure that [for transport]," he said.

Olsen said track charges would likely have to be low since trucks were already preferred for freight so a high track charge was unlikely to make rail more attractive.

"Previously we've had the road system which pays money for the road system. Because it was a one-to-one, there was a bit of clarity around it. If we're going to have the road system paying into the transport system that's a one-into-many situation," Olsen said. 

"As we consider where our transport is going over time if we don't have people on board we're on a hiding to nothing anyway."

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