Giant to go hard for milk markets

By PHILIPPA STEVENSON agricultural editor

The newly mandated Global Dairy Co is expected to embark on an aggressive mergers and acquisitions programme after its October launch.

Distance and highly regulated dairy markets worldwide have conspired to keep New Zealand out of the most valuable and growing dairy product category - liquid milk. Till now.

Yesterday's decision by New Zealand Dairy Group and Kiwi Dairies shareholders to merge and integrate the industry's manufacturing wings with the Dairy Board marketing arm brings new possibilities.

The key strategy for the new entity, whose final name and chief executive are to be announced within weeks, is to target the world's liquid milk sector.

To do that it needs to own, merge or invest in other countries' dairy companies.

As retiring Dairy Board chief executive Warren Larsen said yesterday: "Milk production growth is in Southern Hemisphere countries. New Zealand needs to be there. Bonlac first, South America next," he said of the recent merger with the major Australian company.

Industry sources said a raft of exciting merger and acquisition possibilities were lined up and it would now be full steam ahead.

The second key strategy for the $12.5 billion company, which predicts turnover will grow to $30 billion within 10 years, is to hold the first or second brand positions in chosen markets.

Recent retailer aggregation, which has given multi-national giants like the French Carrefour 3000 stores worldwide, the Dutch Ahold 1000 stores and promises to make the American Walmart the first $US1 trillion business by 2005, means that only the number one and two brands make it on to many shop shelves.

"If you are not one or two you are relegated to house brands where the margins are low," a source said.

Mr Larsen, who was given a standing ovation for his 19 years' service to the industry, told farmers GlobalCo would have the wherewithal to undertake the strategy.

The company would have a very strong balance sheet, helped in part by an $80 million contribution from the Bonlac deal.

"I don't have the slightest doubt it will have the funding capability. It will be in a very powerful state and be an entity capable of delivering the strategy," he said.

GlobalCo chairman John Roadley said he expected reaction from competitors to yesterday's decision.

"We already command healthy respect from our competitors and customers alike. I'm sure the world is watching. We will be more reactive in the marketplace, swifter on our feet, [and give] better customer performance. I'm sure that it will not go unnoticed by our competitors around the globe."

Many of the biggest dairy companies had moved to dominate specific categories - Danone in yoghurt and Unilever in fats, oils and ice-cream - and GlobalCo would have "a strategy appropriate for each region and location in the world where it saw the best opportunities across a range of categories," Mr Roadley said.

The industry was strong in milk powders and cheeses, but could be strong in several categories, he said.