Bigger does not necessarily mean better in agriculture, writes PHILIPPA STEVENSON.
No single business model guarantees success in the global dairy industry - anything goes and anything works.
At the first day of an international dairy summit in Auckland yesterday, leaders of some of the world's most successful dairy firms described company structures as different as they were profitable.
They ranged from Australia's 123-shareholder Bega Foods, which has one of the biggest cheese plants in Australasia, to the nearly 26,000-member Dairy Farmers of America cooperative, which produces 27 per cent of the US milk supply.
More important than size were strategies for success, Bega chairman Barry Irvin told the International Dairy Federation summit at the Aotea Centre.
A small company needed to be better than the average to be successful, but there were many ways to create value, he told around 850 delegates - two-thirds of them from overseas - attending the six-day event.
This year, Bega paid each of its suppliers a $A150,000 ($180,000) bonus, $A40,000 of it from company profits and the rest the benefit of a merger with fellow Australian company Bonlac, and New Zealand's Fonterra.
Mr Irvin and Dr Alan Frampton, chairman of the similarly small, 136-shareholder Tatua Co-op in the Waikato, agreed that constant consolidation of big-industry players provided the business with plenty of opportunities in mostly small, profitable markets.
But Mr Irvin said that a KPMG study showed that 83 per cent of 700 of the world's most expensive mergers failed to give value. Complexity and bureaucracy were the enemy of business, he warned his bigger-company counterparts.
Dr Frampton said Tatua, New Zealand's most profitable dairy company, should not be used as an example to resist globalisation or the pursuit of economies of scale.
"[Tatua] is an example of a small company existing with change. Fonterra, or something similar, had to happen," he said of the giant co-op, which will process 96 per cent of New Zealand milk.
Tatua might process only 1 per cent, but it was dominant in some high-value, low volume markets.
"Fonterra will likely serve the industry well. We outside will form collaborations with it and that will strengthen the New Zealand dairy industry's international relations," he said.
Fonterra chief executive Craig Norgate reiterated the reasons for the company's formation - the rapid consolidation of retailers into ever-more-powerful groupings, and the corresponding merging of suppliers. A merger or acquisition occurred every 2 1/2 days in the global dairy business.
But Denis Brosnan, the chief executive of the Kerry Group, a publicly listed Irish company, said it had never found joint-venture partners who shared its business philosophies.
In 30 years Kerry had gone from being a small dairy co-op to a global food company and milk-product sales were less than 20 per cent of its business.
Kerry had little choice but to become a public company because there were no other co-ops to merge with in the 1980s.
Now the co-op, and individually some of its farmer members, owned half Kerry Group, and their investment had grown from €1 million ($2.1 million) in 1974 to €1 billion last year.
"It is my view that a PLC will not work if the greater part of one's raw material comes from supplier members," he said. Eighty per cent of Kerry's raw material was not from members.
But while companies within and between countries differed, the trends in dairying were the same the world over.
Dairy Farmers of America chief executive Gary Hanman said that across the world, fewer cows in larger herds were producing more milk for fewer farmers.
He also noted that in his company, 20 per cent of the shareholders produced 80 per cent of the milk.