Small operators worried about monopoly plans

By PHILIPPA STEVENSON

Specialty cheese company Kapiti Cheese will ask the Government to impose tight controls on the Global Dairy Co if it allows the monopoly milk supplier to be formed.

Paraparaumu-based Kapiti Cheese is one of the country's largest independent buyers of dairy products, and managing director Ross McCallum said it wanted to continue to buy its needs "at the right cost."

With a turnover last year of $16 million, it is one of several companies assessing likely impacts from the proposed merger of giants Kiwi Dairies and New Zealand Dairy Group and their integration of the export marketing Dairy Board into a $10 billion revenue earner.

The Dairy Goat Cooperative, which has operated under the cow industry's single-seller structure since 1984, is another concerned about fallout from the deregulation which would accompany GlobalCo's establishment.

And the two, small cow dairy co-operatives not contemplating merging into the proposed company, Tatua and Westland, are also considering a future flying solo.

The backers of GlobalCo, which would control 95 per cent of milk production, want the Government rather than the Commerce Commission to decide how to handle a raft of competition issues.

The prospect of bypassing the commission concerned Kapiti Cheese, Mr McCallum said.

"We certainly believe the Government needs to ensure that there is some transparency in the relationship between [GlobalCo's] manufacturing arm and the supply to the domestic market.

"There need to be some robust mechanisms to ensure that the local market is fair and equitable between GlobalCo's own local market organisation and the other players in the market, including ourselves."

Kapiti Cheese intended making submissions to the Government on the issue, as well as about access to quota markets which GlobalCo wanted to retain exclusively.

Mr McCallum said Kapiti Cheese's export marketing was mostly independent of the Dairy Board, though under permits issued by it.

Little was likely to change for the company, though it was likely to increase its business without the restrictions placed on it by the board's operation.

The change was more likely to be noticed by Kapiti's overseas customers.

"They are somewhat staggered that New Zealand would have controlled export marketing."

Dairy Goat Co-op chief executive Dave Stanley said lack of detail on GlobalCo's plans, and doubt about how the Government would handle the matter made assessment of the effects on the company owned by 82 farmers difficult.

However, the co-op, which had grown turnover from $1 million to $30 million in 10 years under the single-seller regime, earlier pleaded for its protection to continue.

The company retained the view that allowing multiple exporters of goat products would be as disastrous as it had been for the small industry in the 1980s when it nearly collapsed as a result of overproduction and a price war, Mr Stanley said.

In the Waikato, Tatua chairman Dr Alan Frampton said his 140-farmer, one-factory company also lacked sufficient detail on merger plans and the Government's intentions to be able to plan ahead.

"The Dairy Board carries on for now, but our need is to negotiate a set of arrangements and to make sure that our relationships and commercial interests are protected, and not compromised in any way."

The company was concerned that GlobalCo proposed that industry regulation continue for a year beyond the merger date.

"That's something that would affect us detrimentally because it would restrict us in what we might want to do commercially," Dr Frampton said.

Tatua would like deregulation to occur simultaneously with the merger, but would be prepared to discuss it being delayed "as long as we had commercial opportunities of an equivalent sort."

Dr Frampton said he was happy for the merger to be exempt from Commerce Commission scrutiny because most of the country's 14,500 dairy farmers supported GlobalCo, and it had a strong case for the international aspects of the business to be given much greater weight than the domestic aspects.

GlobalCo supporters argue that it will need its size to foot it with larger multinationals but that the commission, in seeking to provide competition within New Zealand, would recommend breaking up the industry.

"We need to remember that on deregulation the whole system will change and anything that is left unresolved will suddenly get resolved by the marketplace," Dr Frampton said.

"Our position is to move as fast as we can, deregulate as soon as we can, and let's get on with it."

Dr Frampton said Tatua "compared notes" with Westland, and was likely to work with the other independent dairy cooperative.

In the South Island, Westland chairman Ian Robb said his 375-farmer, two-factory company would support the wish of a majority of farmers to have GlobalCo but would probably remain independent. It expected to have commercial relationships with the company.

The co-op's factories at Hokitika and Karamea produced milk powder, butter and casein which had an extremely good reputation with overseas customers, he said.

"We are confident from the work we have done, and with the products we produce that we certainly could market it ourselves."