Between the lines: Other mega-mergers make sense

By JIM EAGLES

The Government decision to deal with the future of the dairy industry through special legislation, avoiding the need to go to the Commerce Commission, is clearly the right one.

The plan to merge most of the industry into a single giant company involves an array of issues - of which domestic competition is but one - which must all be taken into account.

A select committee hearing on the special legislation will provide a forum for those issues to be considered through the broader lens of what is best for New Zealand as a whole, not the commission's narrow perspective of the domestic market.

Of course there must be safeguards to ensure that a company which will control 95 per cent of the country's raw milk supply does not abuse its position (and that should be achieved through the opening up of competition which will result from an end to the Dairy Board's statutory monopoly plus the normal workings of the Commerce Act).

But there also has to be some regard for the fact that New Zealand produces a mere 2 per cent of the global milk output and even the planned new giant will rank only ninth in the world.

One of the conundrums facing New Zealand business is that any company that wants to become big enough to be something more than a niche operator internationally runs the risk of being seen as a dominant player locally.

Certainly there is provision for the commission to overlook market dominance where there is a significant national benefit. But that is a difficult and time-consuming argument to win - especially when appeals to the courts are added to the script - and firms are understandably wary of taking such a route.

The fact that the Government has recognised that situation as a problem in the case of the dairy industry, and is acting to overcome it, is a welcome development.

Now it needs to go a step further and acknowledge that the dairy situation is not unique.

Some other industries also need to achieve a critical mass if they are to meet the needs of the huge international retailing groups. Yet at the same time as it is making an exception for the dairy industry, the Government is actually moving in the opposite direction for everyone else.

The Commerce Amendment Bill now moving its way through Parliament will significantly lower the threshold at which mergers and acquisitions have to obtain approval from the commission.

The intent is obviously to protect the interests of consumers but the effect will be to make it harder for New Zealand companies to grow.

Rather than selecting some cases as special and leaving everyone else to battle their way through the system, the Government should ensure that the amended Commerce Act makes life easier for anyone wishing to create a global-sized company in a very tiny market.