Dairy groups re-examine their options

By Philippa Stevenson

By PHILIPPA STEVENSON

Dairy industry leaders have returned from overseas sojourns to confront the storm of confusion and anger they left behind in the wake of the failed industry mega-merger.

Last week, Dairy Board directors were in Southeast Asia and Kiwi Dairies chairman John Young visited Australia, while at home their shareholders wrestled with ways to unite the industry.

Mr Young, meanwhile, has indicated he could be out of industry politics altogether from June.

In a shock move in February, Mr Young resigned from the Dairy Board. Now he has told Kiwi shareholders he will not seek re-election in his company ward, where the eight representatives will be trimmed by two as the board reverts to its normal size after expanding following the merger with Northland.

Yesterday, Mr Young declined to comment on whether he could, instead, rejoin the company's board as an appointee.

However, he signalled he might step down permanently, saying there were "some very good people on the Kiwi board and I have no hesitation in passing over the reins."

Former Northland chairman Greg Gent, who replaced Mr Young on the Dairy Board, has been picked by some as his company successor, too. Mr Gent declined to comment yesterday.

Insiders have suggested that changes in industry leadership may be the catalyst for re-starting merger talks and Mr Young's departure could fit the bill. Mr Gent and Dairy Group's Henry Van Der Heyden are said to be on good terms.

Mr Van Der Heyden declined to comment on industry issues yesterday.

But Dairy Farmers of New Zealand vice-chairman Paddy Briscoe said farmers wanted to stay together and they believed MergeCo was the only viable option.

"I think it is worth having another crack and getting in independent facilitators because it is a means for people to find a way forward without compromising their own positions," he said.

His organisation favoured the view of management consultant Brian Shaw of PA Consulting, who believed the merger process was flawed.

Mr Shaw, whose company has published a study of the Australasian dairy industry, said the two companies had become locked into defending positions rather than focusing on the underlying interests.

Mr Briscoe said that if required, his group could help the companies to locate the appropriate expertise, but was concerned that Dairy Group, in particular, felt that it had an absolute mandate from its suppliers.

Suppliers supported the directors in their stance that Dairy Group was worth 40c a kilogram of milk solids more than Kiwi "but I don't think they gave it as a mandate to go it alone, or do all sorts of other things," he said. Nor were farmers ready for the industry to be deregulated regardless of whether it formed a mega co-op as suggested by the erstwhile chairman of its establishment board, Graham Calvert.

Mr Briscoe said that was "moving too far and fast for most farmers," who would favour deregulation only if the industry united into MergeCo where the resulting threat of competition would "keep the mega co-op honest and competitive."

"We really don't want to give up one without the other," he said.

Adding to industry unrest, some North Island Dairy Group suppliers are anxious that a company proposal to issue two classes of shares covering existing and new milk supply is the first step towards turning the cooperative into a corporate business.

The aim of the plan, which has been presented so far only to southern suppliers, was to protect the investment of present suppliers and establish a price for those wanting to supply new milk, the company said.

Mr Briscoe dismissed concerns because the shares would still be linked to supply.

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