Between the lines: Fierce Tatua at last takes a deep breath

By PHILIPPA STEVENSON

The small and fiercely independent dairy company Tatua has advertised for marketing staff.

The profitable company, which has around 140 suppliers, has staunchly supported the proposed merger of its neighbouring industry giants, New Zealand Dairy Group and Kiwi Dairies and their integration of the Dairy Board, while being adamantly opposed to joining it.

Tatua has been holding its breath for so long waiting to market its own high-returning specialist products that it's a wonder it hasn't turned blue.

Now, with signs suggesting that the mega-merger could be a done deal in a little over four months, the company has allowed itself to breathe, and to start to expand the marketing department it will need after cutting ties with the board.

Tatua's sigh of relief has been echoed by most of the 14,000 dairy farmers around the country keen for the merger.

Now, sitting atop the rollercoaster that is dairy returns from international commodity markets, they are eager for the deal to be sealed and work to begin on a business strategy designed to ease the boom-and-bust cycle.

This overwhelming focus on the international market is the industry's main platform for arguing that the merger should not be subject to the Commerce Commission's normal review to ensure there is not dominance in domestic markets.

That argument, and comment from Government officials, is likely to comprise much of Agriculture Minister Jim Sutton's briefing to the cabinet tomorrow.

The industry has called for there to be a balance "between competition for its own sake, the undesirable and unintended consequences of competition, and other national goals which competition alone cannot deliver."

The Commerce Act, it says, is not the means by which those goals can be achieved. Focusing on the act would lead to a comparison of the size of the proposed Global Dairy Co with the New Zealand market, and other manufacturers.

The commission, the dairy industry says, has already shown a preference for two, smaller companies.

In response, the industry has highlighted the views of economics professor Lewis Evans, who has argued that to force New Zealand firms to be small by New Zealand standards through such an approach to mergers is likely to make it difficult for those firms to compete in other countries.

It may even raise costs for New Zealand consumers.

Professor Evans suggests that not pursuing the GlobalCo strategy, and fragmenting the present unified dairy industry structure, would condemn New Zealand to the margins of world commerce and trade.

He says it would mean that, in a world of large dairy-industry firms, the scale of the largest New Zealand-owned participant would be defined by reference to the small New Zealand domestic market.

Professor Evans also argues that if New Zealand also removed export controls it would allow large-scale international dairy companies into the small market.

The foreigners could undermine small New Zealand companies, resulting in New Zealand's losing the strength it has achieved in the international marketplace.

It would also mean the breakdown of cooperative control and ownership of the industry, as foreign firms followed their normal pattern of contracting for milk supply.

Politicians gathering for their first cabinet meeting after the holidays have some weighty matters to consider.