Welcome to the 'Big Bang' dairying told

By Philippa Stevenson

agricultural editor

The $8 billion New Zealand dairy industry's mega co-op plan reflects a worldwide trend known as the "co-operative Big Bang," says a US academic.

Professor Bruce Anderson, director of Cornell University's co-operative enterprise programme, has worked primarily with agricultural co-operatives for more than 20 years.

Professor Anderson, who was in New Zealand to address last weekend's crucial dairy company summit, recently advised on a proposed merger of America's two largest agricultural co-operatives, which have combined annual revenues of $20 billion.

He said the implosion, or massive merging of co-operatives, around the world was a response to consolidation in the retail and manufacturing sector.

"Some executives in the States call it the co-operative Big Bang," he said.

Examples included Denmark, where one, big dairy co-op formed recently from two, the MD Foods and Clover co-ops. In the US, four large dairy co-ops merged about a year ago, and the huge grain co-ops, which, he advised, were planning to.

"Two weeks ago, HJ Heinz announced it would merge with Best Foods [formerly CPC Corporation]. Both of them are about $10 billion [in revenues] and said they were too small to deal with the manufacturers and retailers of today."

Professor Anderson said co-operatives were "absolutely" a viable business structure, and only tended to be regarded otherwise by people who did not understand them.

Co-operatives were a particular feature of the agricultural sector, and US co-ops' market share in agriculture had been rising, but the structure was not just limited to food.

"We're seeing more and more co-ops pop up in the US, for instance in the electrical transmission industry. The banking sector is also into co-ops with credit unions comprising about a third of all deposits in the US. Almost all hardware is marketed through five major hardware co-ops in the US."

He endorsed the sentiment, prevalent among New Zealand dairy farmers, that to allow external investment would cost them industry control.

"I am very much against that [outside shareholding] because once you let just one public shareholder into a co-op you have to do what's best for the interests of the public shareholder at the expense of member farmers."

Professor Anderson dismissed claims that external equity was needed to fund co-operatives' intensive growth.

Co-operatives around the world maintained there was a shortage of capital and their farmers could not afford to put more capital in to fund aggressive growth, he said.

"For the most part, I say hooey. The shortage is in the return. If you have a high enough return, I can guarantee you your members will find the capital to invest in, not only their own operations, but the co-op's operations."

He said a very successful fruit and vegetable co-op headquartered in New York had $1.7 billion in sales and only 605 members.

"They have several members with well over a million dollars in equity in that co-op because historically that organisation has produced a very good return. So if the return on the equity is there, because the co-op is doing a good job in the market and adding value, I don't think there is a shortage of capital in the agricultural community."

He strongly favoured farmers trading shares, or "delivery rights," among themselves. Trading shares which reflected their supply to the co-operative enabled retiring farmers to sell their ability to deliver milk to someone who wanted to expand, he said.

He described himself as a "strong proponent" of tradeability that enabled supply to coincide with demand.

"I'm a true believer in that everything starts with the consumer, and that co-operatives have to be very market-conscious, shouldn't overflood a market and take on more product than they can profitably market for their members."