Eight dairies agree to join mega co-op move

By Phillipa Stevenson

The Dairy Board said yesterday all but one of New Zealand's nine dairy companies is prepared to join a mega co-op capable of lifting industry earnings by $300 million a year.

Board chairman John Storey announced "a major re-definition and re-engineering" of the country's biggest export earner. The proposal will be presented to Dairy farmers at meetings starting next week but already had the endorsement of company chairmen, he said.

Only tiny, Waikato-based Tatua, comprising one per cent of the industry and consistently giving it's 145 farmers the highest payout, had indicated it would stay outside a new structure, Mr Storey said.

Board chief executive Warren Larsen said the proposal aligned "the back end of the business" with the board's two strategic business units. "We're effectively lining up manufacturing with that," he said. Since February, the board has created a consumer/food service unit, known as New Zealand Milk, and another unit for ingredient products - NZ Milk Products.

The New Zealand-based structure to support that would have a co-operatively, farmer-owned, single integrated company handling milk processing and ingredient marketing.

A separate company, in which farmers would hold shares that might ultimately be tradeable, would market consumer products.

This corporate-style business might require external funding. Yesterday the board said that could amount to $4 billion of a possible $12 billion requirement over the next 10 years. Consumer products are marketed under brands the board either owns or controls such as Anchor - the world's biggest butter brand.

Ingredients are either bulk commodities like milk powder or high value niche products often added to other company's products.

Mr Storey said the move to a giant company handling virtually all the industry's milk would have to pass government and commerce commission scrutiny. There were issues of dominance in the domestic milk market and in the supply of milk from farms.

He hoped any legislation would be dealt with this year allowing a merged company to commence operations for the 2000-2001 season. "I am confident the industry will be supportive of the recommendation and that government will be willing to work with a united industry to get the best outcome," said Mr Storey.

"The dairy industry is today an $8 billion business. With the right structure linked to the industry's new strategic plan, our projections are that in 10 years the industry will be earning around $40 billion."

Mr Storey said the industry's new structure could operate in a regulated or deregulated environment. Under the new scheme, farmers would receive two income streams. They would be paid a commodity milk price and receive a dividend based on the number of shares in the consumer business.