PGG merger figure raises eyebrows

Claims that the merger of rural services companies Pyne Gould Guinness (PGG) and Wrightson will command only a 15 per cent market share have raised eyebrows among farmers.

The merger of the sector's two biggest players needs the approval of the Commerce Commission, which must decide whether the new entity will lessen competition.

PGG chairman Bill Baylis said the new company, named PGG Wrightson, would generate revenue of $1.1 billion, accounting for 15 per cent of a $7 billion sector.

But Keith Kelly, Federated Farmers' Auckland president, said he could not understand how they reached this conclusion.

"PGG are huge, as are Wrightson, so I don't know how they get 15 per cent out of it."

Kelly said he had only two possible suppliers for his sheep and beef farm, and added that farmers would watch closely for any impact on prices.

"There's two ways of looking at it. One, it's a removal of competition. Two, it could be amalgamation and increased efficiency," he said.

"It's one of those [things]. Five years down the track, I'll be an expert."

Baylis said the 15 per cent market share was derived from Government statistics on total inputs into the agricultural and horticultural sectors, minus intermediary consumption, or double counted inputs.

This resulted in a sector value of $7 billion each year, of which PGG Wrightson at $1.1 billion would account for 15 per cent.

"If people try to relate that to a percentage of the traditional rural services sector as we generally understand it, well of course that's quite a different number."

Baylis said a perception that PGG Wrightson would dominate the South Island livestock trade was wrong. Small local operators and direct trade to meat companies accounted for more than 70 per cent of the market, he said.

"If you take approximately 70 per cent off for the meat companies and 'x' per cent off for all those other people, it's not nearly so big an ogre as people would paint it to be."

Baylis said a detailed study of the rural supply sector by division had been undertaken in preparation for the merger.

But he declined to say what its findings were. "That analysis has been done for the purposes of the Commerce Commission investigation but that information at this stage is still sensitive."

The commission must determine whether the merger will "substantially" lessen competition.

"We absolutely accept that the Commerce Commission may take a different view, as is their right," said Baylis.

"But we would have been silly to make this announcement if we thought we were going to get rolled over."

One analyst has predicted the merger will drive further rationalisation as companies strive to stay competitive.

But Brian Train, chairman of rural supply rival Allied Farmers, does not expect this to happen.

"There's not many of us left."

However, he said small independents specialising in areas such as livestock were still common.

"There are a lot of private operators in the sector and there will always continue to be [so], because that's the nature of the beast."

Train said Allied Farmers would watch for chances to expand, but not on the PGG Wrightson scale.

"One of the advantages of being smaller is that our top management is very close to the client ... which is pretty hard to do in a very large organisation."