Profits but sour taste for small companies

By PHILIPPA STEVENSON Agricultural editor

Dairy industry payout leaders, Tatua and Westland, want legislative protection to ensure they have a future independent of the giant Global Dairy Co.

Westland, based in the South Island, and Tatua (Waikato) scored major victories in the payout stakes over the two companies merging to form GlobalCo - Kiwi Dairies and New Zealand Dairy Group.

Tatua's 136 farmers received an industry record payout of $5.50 a kilogram of milksolids, and Westland's 332 shareholders a company record of $5.20.

The figure was $5 for the 13,000 farmers represented by the big companies.

But the two small co-ops, who produce just 3.6 per cent of the national milk supply, fear their profitability is at risk because of the Dairy Board's role in GlobalCo.

They told a select committee considering the Dairy Industry Restructuring Bill that the legislation, which will dismantle the board's monopoly exporting rights and allow it to become part of GlobalCo, needed to consider the independent companies.

They said negotiations with GlobalCo on a number of issues had largely failed.

The bill should include provisions for valuing the board, ensuring that the companies could continue to export and receive their share of returns from quota markets and the intellectual property the industry had built.

The companies made almost identical submissions to the select committee last week.

They said the companies had tried and failed to negotiate interim export licences to cover the period from June 1 until the board lost its monopoly.

Tatua said it was unfair that the company should have to continue to sell its products through the board in the usual way until deregulation.

It would be unable to set up a marketing structure so it could survive.

Westland argued that GlobalCo would receive all the benefits of the board's experience and knowledge, business associations, processes and customer and trading structures from day one.

"Westland, on the other hand, if it becomes an independent dairy co-operative, will need to develop the skills and markets necessary to market and sell its products overseas," it said.

Both companies said they would need assistance and protection while they set up marketing structures.

Tatua said: "The Dairy Board and the new co-operative must provide marketing facilities including agency selling for not less than five years at market prices and cannot refuse to act for or assist Tatua."

The companies also argued for a fair share of the board's assets and returns from the high-earning quota markets, such as Europe.

They also protested at the potential loss of access, and rights to the physical and intellectual property of the Dairy Research Institute.

Tatua said it believed it had used the services of the institute "in an amount equalling that of the whole rest of the industry".

It suggested all existing dairy companies hold shares and have access to a new company in which the institutes' assets, rights and liabilities had been vested.

But while Tatua and Westland sought protection from GlobalCo dominance, Westland shareholder Graeme Neylon went before the committee to ensure he was protected from his own company.

The legislation was providing GlobalCo shareholders with fair value for their shares when they entered or left the industry, but Westland suppliers got no such protection, he said.

"The reality is that an independent Westland Co-op will have a captured supply base on the West Coast," Mr Neylon said.

"Westland will therefore be able to behave towards its shareholders, especially those who want to cease supply, in precisely the way in which the new bill prevents GlobalCo from behaving towards its shareholders who want to cease or reduce their supply of milk."

He urged the committee to provide him with the same rights as GlobalCo suppliers.