Editorial: Vote carries dairy across a Rubicon

Dairy farmers have always maintained that their welfare depended on a single New Zealand exporter. For almost 80 years they have been given that single exporter by order of Parliament. It was in 1923, after a period of fluctuating world prices, that the Dairy Producers Export Control Board was established to meet the wish of farmers for compulsory pooling of products for export.

Since then, the Dairy Board has developed into a considerable global trader, dealing in several products besides milk and not always confining itself, either, to New Zealand products. At one stage it was handling motor vehicles under a barter arrangement with the dying Soviet Union. Successful as it has been, the board had its heyday in the era of European butter mountains, constant market access negotiations and controlled trade.

That era has not entirely passed. Subsidies, artificial prices and trade barriers still characterise the major dairy markets. But the board has struggled to present itself as a global player in more upmarket dairy products, which must be among the aims for added value that will enable New Zealand to maintain its present living standard.

The GlobalCo proposal, approved by the vote of dairy farmers yesterday, may not be everybody's ideal. It is in essence a defensive measure against the day that the dairy industry would be deregulated, come what may. The merger of the two largest processing cooperatives is intended to create a corporate power as dominant in the industry as the Dairy Board has been, without the board's need of statutory backing.

Farmers have not lost their belief in a single exporter; they have lost faith in the ability of Governments to guarantee its status. For that they can blame, or thank, MMP. It was Winston Peters, in coalition with National, who rocked the rural sector with a Budget warning to prepare proposals for deregulation. The boards created a public furore and the Government backed off. But behind the scenes, the message was taken. The first GlobalCo proposal was a direct consequence.

It, and the second proposition finally put to a vote yesterday, faced opposition from two sides. To those who remain wedded to a statutory export monopoly, GlobalCo represented a dangerous deregulation. To those anxious for true competition in the domestic dairy industry, the merger presented the danger of overwhelming market dominance. And for non-farmers wishing to invest in dairy processing and marketing, GlobalCo offered nothing. It would be a farmer cooperative, its ownership apportioned among its milk suppliers.

Business critics have pointed out that GlobalCo suffers many of the same flaws they have long lamented in the Dairy Board. New Zealand's largest and most export-oriented business would continue to be governed by people with limited commercial experience or expertise. It would continue to "bundle" the earnings of dairy products with other income in returns to farmers, thereby giving them poor production signals and compelling them to tie up too much of their investment in one industry.

But there is one important difference between a statutory monopoly and the GlobalCo proposal: it may be difficult to export milk independently of GlobalCo, but it will not be illegal. The law will no longer stand in the way of those who spot an export opportunity using New Zealand milk. If they can find farmers to supply the milk and investors to provide the means of processing it, they are in business.

Admittedly, they would be unlikely to frighten GlobalCo with its 95 per cent share of the industry and 96 per cent of its exports. This proposal is a long way from the competitive domestic environment that often produces leading global competitors. But it will be an improvement.

Dairying will still have too many eggs in one basket. It is gambling heavily on those who will lead GlobalCo. They have 20 per cent of our export earnings in their hands.

We all must hope they know what they are doing and that they can make this country's name synonymous with fine dairy foods.