Gate swings open for dairy merger

By PHILIPPA STEVENSON agricultural editor

The biggest company merger in New Zealand history is now firmly in the hands of 14,000 dairy farmers.

The Government yesterday exempted the merger of the key players in the $12 billion dairy industry from scrutiny by the Commerce Commission.

A package of regulations in legislation to be introduced to Parliament next month will involve at least 13 weeks of select-committee discussion.

But the only real hurdle left for the mega merger is to gain 75 per cent farmer support.

The farmers will vote in mid-May.

Prime Minister Helen Clark yesterday said she strongly supported the decision to bypass the competition-policy provisions of the Commerce Act in the marriage of Kiwi Dairies and New Zealand Dairy Group.

If farmers bless the long-awaited nuptials the Dairy Board, which will become the new company's marketing division, will within a year lose its monopoly on exporting.

"This is industry driven," said the Prime Minister.

"The Government's position has been to ensure the proposal goes forward in the best shape it can.

"In the end it is up to farmers whether they go with it or not."

The exemption from commission oversight did not set a precedent because no other export industries had a comparative structure.

Agriculture Minister Jim Sutton said the merger provided a way of resolving the dysfunction created by the industry's current regulations.

The present situation could not continue. Kiwi and Dairy Group were both making overseas acquisitions while dominating the board, which was also forming overseas alliances.

"[They are] potentially all in competition with one another. That is not a sustainable situation and something needs to be done."

Once the merger was complete the new business, dubbed Global Dairy Company, would be subject to the full disciplines of the Commerce Act, which did not now apply to the Dairy Board, Mr Sutton said.

It was doubtful whether, under its existing rules, the commission could ever approve a structure such as GlobalCo's, he said.

Those who thought the commission could approve a new structure also acknowledged that it could take at least two years.

"We don't have a couple of years to fiddle around."

Mr Sutton said it was appropriate that farmers had the final decision on the company.

"Looking at the performance of the NZSE top 40 over the last 50 years or so, and the performance of the dairy industry, you've got to say they [farmers] have the track record to deserve the main say in their own industry."

GlobalCo deputy chairman Greg Gent said it would be a historic day to see the industry deregulated and one, large, truly world-competitive New Zealand dairy company formed.

"Clearly now we need the support of our farmers," he said.

"That can never be taken as a given, and that is the next step in consummating the Global Dairy Company."

GlobalCo directors rejected criticism from two former non-farmer dairy company directors, Brian Allison and John Fernyhough, that it would be dominated by farmers with limited commercial experience.

The board would initially have 10 farmer directors and three external members, with farmer numbers subsequently declining to nine. That was a good mix of experience, said director Henry Van Der Heyden, chairman of Dairy Group.

Mr Gent said farmer directors had got the business to its present position.

"It's a business we can all be proud of, both as farmers and New Zealanders, and I'm sure farmer-directors have the ability to take it forward."

Dairy Farmers of NZ chairman Charlie Pedersen said farmers had what they wanted - a largely unified dairy industry with integrated manufacturing and marketing operating in a more commercial environment.

Deregulation would change industry dynamics. Farmers would no longer be captive to companies, and competition at the farmgate for milk price would be guaranteed by the fair entry and exit proposals.

"It is really going to be highly commercial in comparison to the situation we have now. We think it is the best of both worlds."

When formed, the company would represent 95 per cent of the dairy industry, accounting for 7 per cent of GDP, 20 per cent of total exports, around 96 per cent of dairy exports and 50 per cent of the domestic dairy market.