Farmlands merger would mean added buying power

Farmlands Trading Society members could be in for even greater discounts, with increased buying power one benefit of a potential merger with a fellow farm-goods supply co-operative, Combined Rural Traders Society (CRT).

A notice mailed to Farmlands shareholders said both boards had agreed to "investigate a potential merger between the two farmer-owned co-operatives".

"The boards have appointed external professional advisers to assist with their investigations and expect to give a further update to shareholders in mid-October," the notice said. "Any proposals would be subject to full consultation and a vote from all our co-operative members."

The potential merger with its South Island equivalent comes at a time when both organisations are reporting good financial results.

Farmlands chief executive Peter Ellis said despite a "soft" market for rural merchandise in the second half, Farmlands recorded a $90 million increase in turnover to $773 million, in the year to June 30 - up 13.1 per cent on the previous year. Rebates to members increased by $3.7 million to $50.4 million.

Pre-tax profits before loyalty rebates, similar to the previous year at $5.5 million and $5.2 million, would be returned to shareholders in the form of a loyalty rebate.

The distribution included $2 million in cash, with the balance being shares and credit-card commissions in lieu of loyalty rebates.

"I believe these growth achievements have been delivered in a market that has delivered no growth, supporting our assertion that we continue to gain market share in the North Island," Mr Ellis said. "Robust results" for the first half of the year were impacted by "caution in purchasing intentions by our shareholders in the second half, combined with extremely favourable growing conditions through summer and autumn reducing the demand for supplemental feed for livestock".

He said growth was evidenced by an increase in existing-store sales and the opening of new stores in Kamo, Helensville, Inglewood and Huntly. Stores in Te Awamutu and Matamata were also relocated to purpose-built premises. The Gisborne store was relocating and scheduled to open by January.

"We now believe we are a market leader, if not the market leader in the North Island rural merchandise market."

CRT reported a $200 million rise in sales in the year to March 31, to $1.3 billion. Profits before tax rose 55 per cent to $13.15 million - $9.75 million to be returned to shareholders.

Members of both organisations issue credit cards to members, giving them discounts on a range of products through affiliated companies. CRT has fuel-supply and real-estate divisions.

The fuel-supply business has been credited with much of CRT's recent growth.

CRT operates 31 retail stores in the South Island and has 26,000 shareholders. Farmlands has 47 stores and 27,925 shareholders. Both were established in the 1960s - Farmlands celebrates its 50th anniversary this year.

"Given both co-operatives operate in the same sector but different markets, the possibility of a merger has been speculated on by market commentators for a number of years," the notice to shareholders said.

Farmlands chairman Lachie Johnstone said it was too soon to speculate on whether a merger may happen. While there may be administrative and procurement advantages, there may also be pitfalls.

"We are still in the very early stages of quantifying those things," he said. "If we have anything definitive to say, there will be a full round of consultation and obviously there will be shareholder meetings."