By PHILIPPA STEVENSON agricultural editor
The dairy industry - New Zealand's largest export earner - will be transformed by the merger of its two largest companies under a deal announced yesterday.
The mega-merger, forming the country's largest company, will absorb the industry's export arm, the Dairy Board.
If the ambitious plan succeeds, an enterprise nicknamed Global Dairy Company will be headquartered in Auckland in six months, employing 18,000 people worldwide and selling $10.5 billion of dairy products in more than 120 countries.
It will be twice the size of the country's present top company, Telecom, and will be the 14th largest dairy trader in the world - the ranking now held by the Dairy Board.
But the new company wants to do better by rising to No 1 or 2 in the world, beating dairy giants Nestle and Kraft. It aims to have sales of $30 billion by 2010.
That is considered impossible for the industry in its present form, in which competing manufacturing co-operatives sell their products through a producer board established by Government statute.
The company is expected to be better attuned than the board to international markets, and better at transmitting price signals to its suppliers.
Agriculture Minister Jim Sutton hinted yesterday that the Government would now have to decide whether it was in the public interest for a company to inherit the board's monopoly power.
The industry's reorganisation was planned five years ago.
Yesterday, after years of wrangling and the failure of an earlier attempt, major processing co-ops New Zealand Dairy Group and Kiwi Dairies finally agreed to a merger.
It is the culmination of a decade of change, during which hundreds of dairy companies have been distilled down to a dozen.
Dairy Group chairman Henry Van Der Heyden said it was a historic day which could seem "like the last major step in consolidation of the industry over the past 20 years."
But it was more important, he said, to see it as "the first step in a new beginning for the dairy industry as a major global player."
The industry already generated more than 20 per cent of New Zealand's exports and nearly 7 per cent of its gross domestic product.
But an integrated industry would be able to take advantage of opportunities in the global market much more quickly.
The chairman of the new company, South Island farmer John Roadley, has championed the single dairy company proposal since 1995.
He said yesterday that the dairy industry had achieved a faster growth rate than the country's GDP.
The merger must still be approved by the country's 14,500 dairy farmers, who will be the new company's owners.
Their payouts are expected to be boosted almost immediately by a $300 million-a-year saving in the industry's costs.
Job redundancies are expected, most likely in the head offices of the two companies and among the Wellington-based Dairy Board's staff of 600.
Few, if any, of the board's 10,000 overseas staff are likely to be affected.
Last night, Federated Farmers national dairy chairman Charlie Pedersen said the long-awaited merger was "a wonderful Christmas present."
Mr Sutton welcomed the merger as crucial to New Zealand and said the Government would give it top priority.
The scheme needs a range of law changes, including dispensing with Commerce Commission approval for the merger.
Mr Sutton said the timetable proposed for the legislative steps was optimistic.
The Government had to decide how to protect the public interest and "move from laws designed to stop a highly fragmented industry falling apart to laws that prevent a monolith from falling to the temptations of monopoly power."
The deal proposes that Dairy Group's half share of the domestic supply company Dairy Foods be sold to ensure competition in the domestic market. Dairy Foods has 40 per cent of the market.
The other major player is Kiwi-owed Mainland, which the new company would keep.
NZ dairy giant aims for top spot
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