Milk price rise 'just coincidence'

By KEVIN TAYLOR

The cost of a litre of milk from the supermarket remains at the whim of international markets.

Supporters of the much-trumpeted $12.5 billion dairy mega-merger say it was a coincidence that Anchor milk rose by 10c a litre on the same day that the Government gave the GlobalCo venture a big boost.

They say the price rise on Monday resulted from better export returns to dairy farmers and the lower Kiwi dollar, not a lack of competition.



The merger of New Zealand Dairy Group and Kiwi Dairies, which will create the world's ninth-largest dairy company, still needs 75 per cent farmer support to proceed.

Domestic milk sales will be only a tiny part of the market for GlobalCo.

About 5 per cent of the milk produced by the country's 14,000 dairy farmers is consumed here - the rest is exported.

And the domestic market is 90 per cent dominated by two companies - Mainland (the Tararua and Meadowfresh brands) and New Zealand Dairy Foods (Anchor, Pam's, First Choice).

Mainland, 83 per cent owned by Kiwi, will remain part of the new giant.

But under the merger regulatory package the Government announced on Monday, Dairy Group will have to sell its 50 per cent stake in New Zealand Dairy Foods.

GlobalCo will also have to supply milk to anyone - even competitors. And farmers can choose to supply up to 20 per cent of their milk to a GlobalCo competitor without penalty.

They can also start their own companies.

Consumers' Institute chief executive David Russell said that while the new structure appeared to offer slightly more competition, he feared nothing would change and a duopoly would continue.

There would need to be at least three companies of about equal strength competing vigorously to deliver benefits to consumers.

"I think there will be some enterprising people who will have a crack, but I don't think that will be sufficient to provide a competitive market."

But there are already signs of competition. Palmerston North farmers have joined supermarket owner Foodstuffs to provide milk for domestic consumption.

Ted van Arkel, the managing director of supermarket company Progressive Enterprises, is unsure yet whether the merger will lead to increased domestic competition.

"As a supermarket operator, we are conscious of the need for competition, for the costs to consumers to be kept low. We have some doubts whether we will be able to hold prices."