By Brian Fallow
WELLINGTON - The dairy industry's proposed mega-merger is expected to involve the sale of either the Mainland or New Zealand Dairy Foods marketing businesses, in a bid to avoid regulatory concerns about competition in the domestic market.
The proposed merger of the Dairy Board and all but one of
the processing cooperatives would create New Zealand's largest company, but only the 12th largest dairy company in the world.
The parties have applied for Commerce Commission authorisation. The commission can authorise a merger or acquisition which would otherwise be barred on competitive grounds, if the parties can establish that the public benefits, including net economic efficiency gains, outweigh the detriments.
They do, in this case, by at least $200 million a year, the Dairy Board said yesterday on behalf of the applicants.
But the two major cooperatives' New Zealand retail operations, Dairy Foods, owned by the New Zealand Dairy Group, and Mainland, owned by Kiwi Cooperative Dairies, between them dominate the domestic supply of liquid milk, butter, cheese and other retail dairy products.
"The divested company will have the processing capacity, brands and supply of raw milk and products to ensure vigorous competion in the domestic market," the board said yesterday.
Whether the planned divestment of one or the other business would satisfy the commission is likely to depend on how it defines the domestic markets.
The mega-merger will give dairy farmers no choice who they sell their milk to, but in practice that is already the position for 85 per cent of them, Dairy Board spokesman Neville Martin said.
The mega-merger will require legislation. If, as expected, that involves scrapping the board's right to grant export licences, it will also remove a barrier to entry to New Zealand by overseas players.
Mr Martin said the industry had developed a strategic plan which had the potential to lift sales from their present $7 billion to $30 billion over the next decade.
That involved a willingness to grow the global business by acquisition and to process other people's milk in the course of leveraging off the strength of existing brands and sophisticated processing knowhow.
The commission expects to make its decision by September 13.
