Dairy mega-merger lifts world ranking

By PHILIPPA STEVENSON agricultural editor

An independent study of New Zealand's proposed dairy mega co-op has boosted it to ninth place in the world's dairy company big league.

The cabinet will consider today the merits of merging the country's biggest milk processing co-operatives, Kiwi Dairies and New Zealand Dairy Group, into a single company with the industry's Dairy Board export arm.

It is expected to agree to legislation to allow the merger to go ahead, bypassing the need for approval from the Commerce Commission.

When the proposal, dubbed Global Dairy Company, was announced in December, its international ranking was put at 14th - the same spot occupied by the Dairy Board.

But a new study by leading global dairy industry banker Rabobank International has calculated that GlobalCo's revenues of more than $US5 billion ($12.2 billion) would allow it to debut in ninth position.

Swiss-based Nestle, with dairy product turnover of more than $US13 billion, is the world's largest dairy company. French company Lactalis and British/Dutch giant Unilever, both with around $US5 billion in dairy sales, rank on either side of GlobalCo.

Rabobank global dairy industry specialist Dr Adrie Zwanenberg said New Zealand's move to form a single company had come late in a world in which dairy concerns had merged and formed alliances at the rate of one every 2 1/2 days for the past three years.

Since January 1998, there had been 469 dairy mergers, acquisitions or alliances worldwide.

Dr Zwanenberg has been a frequent visitor to New Zealand during the past two years while discussion has raged on a mega co-op.

"I think it should have happened two years ago," he said.

"Of course there is no other step, otherwise you would have to split up the board [between Kiwi and Dairy Group], and I must say many competitors in the world would love you to do that."

Dr Zwanenberg said the board's established reputation suggested only three possible names for the new company.

His picks were New Zealand Dairy Board, New Zealand Dairy Group (or New Zealand Dairy Company), or Anchor - the dairy product brand known worldwide and rated among the top brands in countries such as Britain.

After Nestle, the board was one of the few dairy companies that was truly international, Dr Zwanenberg said. It was highly respected around the world, but no one was aware of the existence of processors Dairy Group and Kiwi.

"Splitting up the board is killing the board, and killing the board is killing your export position. You are 95 per cent dependent on exports."

He said it was not too late "but rather late" to form GlobalCo because the rate of mergers in the industry had made product purchasers question the longevity of the companies they dealt with.

New Zealand was being watched closely.

Customers wanted to be sure that their supplier would be there for the long term.