US expert urges quick co-op action

By PHILIPPA STEVENSON

New Zealand's eight remaining dairy cooperatives need to grasp the nettle and merge all at once, the facilitator who created the United States largest dairy cooperative says.

The $US8 billion ($15.7 billion) Dairy Farmers of America cooperative is the new entity formed from four cooperatives. It has striking similarities to the New Zealand industry's proposal to merge eight cooperative with the exporting arm of the Dairy Board.

Facilitator Mike Fayhee said the key concept in the US merger was to "state at the outset that this was not simply a merger, this was the creation of a brand new organisation".

None of the old organisations were going to survive, he told the Business Herald from the new group's Kansas City headquarters.

"That had to be the focus because there could not be winners and losers. There could not be people [saying] 'I got my way on this issue, but I had to give up on that issue.'

"We came up with something that was different in structure than any of them had before.We had different capital plans, different governance structures, management team, headquarter location, different name. Dairy Farmers of America [DFA] is really a new organisation. It is not a carryover from any of the other four."

Here the attempt to create one mega cooperative has become bogged down in fierce rivalries between NZ Dairy Group and Kiwi Co-op Dairies who control 87 per cent of the industry.

Mr Fayhee said two of DFA's former co-ops were strenuous competitors which were "hurting each other considerably," but they also knew there were considerable cost savings to be achieved - up to $US50 million annually - by working together.

"There were some hard feelings to be overcome. They had been rather aggressive with each other in the marketplace with their customer base and also competition for members."

To change the entrenched views, Mr Fayhee said: "I got the four chairmen in a room, closed the door and told them I wouldn't let them out until they agreed with me."

It took a couple of days. "It is a process where you have to get people to trust one another," he said.

It was important they talked other than about business in order to know one another and ultimately understand that they were honest and trustworthy and trying to do the same thing.

"This is not an acquisition where you buy the assets and fire all the people and start with your own folks. Everybody that is there has to continue to be there in some fashion or form. They are partners, and the requisite is some level of trust. They can disagree with each other but they must trust each other.

"Everybody recognised that those 22,000 farmers would be better off for putting the four organisations together."

Mr Fayhee said all four co-ops merged at once, and he would have recommended the same if there had been eight, as there are in New Zealand.

"It's too complicated to do it the other way."

He said if two co-ops were much bigger than the rest they could merge first, "but there is some merit in striking while the iron is hot".

Farmer opposition was won over by the creation of a 120-person board, though this would soon be reduced to 48.

Mr Fayhee said his advice in similar mergers is for the organisations' leaders "to agree on the big strategy and why the consolidation is in the best interest of the owners."

The strategy needed to be articulated in a very clear, simple way - "something they can write on the back of their business cards.

Kiwi and Dairy Group are expected to decide by December 10 if their merger will go ahead.