Milk rise puts heat on dairy merger

By PHILIPPA STEVENSON agricultural editor

A planned $12.5 billion dairy mega-merger, the largest in New Zealand history, came a big step closer yesterday - then ran into public relations turbulence as milk prices went up.

The merger of New Zealand Dairy Group and Kiwi Dairies got a vitally needed boost from the Government.

Prime Minister Helen Clark said that the deal, which would create the world's ninth-biggest dairy company, could go ahead without scrutiny by the competition watchdog, the Commerce Commission.

But with this announcement came news that Anchor milk will go up 10c, to about $1.65 a litre for the "blue" variety.

Tararua will match the rise in about two weeks.

The price rises, coming on top of increases last year, have been caused by booming export prices - helped by a low dollar - rather than the merger, said NZ Dairy Foods chief executive Peter McClure.

The merger, which now needs only support from 75 per cent of farmers to proceed, will create a new multinational owned and controlled by New Zealand dairy farmers.

It will employ 18,000 people in 120 countries and have earnings of more than $12 billion a year.

The Government's Commerce Commission decision goes against the wishes of the merger's critics, who believe the big company will hold retailers and consumers to ransom by controlling milk supply.

The managing director of supermarket company Progressive Enterprises, Ted Van Arkel, said that while the Anchor price rise was not connected to the merger plan, he was concerned about the prospect of further rises.

"It's just unfortunate timing where the price increase has started to hit the consumer - not quite what I think they would have wanted.

"We're very conscious of the need to have strong competition to ensure that costs are kept as low as possible for the consumer.

"I think now it will be a bit tougher to ensure that those costs will be kept as low as possible."

Consumers' Institute chief executive David Russell said he feared that milk price rises would follow the merger.

Act MP Penny Webster, a former Auckland Federated Farmers president, said the decision to allow the new firm, dubbed Global Dairy Company, to avoid Commerce Commission scrutiny left consumers and dairy farmers vulnerable.

But supporters say the deal worked out with the Government will keep the domestic market competitive and may benefit consumers with lower prices.

It includes a requirement that the company supply raw milk to anyone who seeks it.

Agriculture Minister Jim Sutton said the new company would be subject to the Commerce Act, even though its formation was not.

The commission would act if competitors had trouble getting milk from the big firm. That would create opportunities for "niche operators."

GlobalCo deputy chairman Greg Gent said competition in New Zealand was one of the cornerstone objectives of the deal worked out with the Government.

"The barrier for entry to the local market is low. We've seen that with the company set up in the Hawkes Bay [North Island Dairy Co] - some $10 million to set up a town milk supply company.

"I think there is plenty of opportunity for players if they wish to come in and compete in that part of the business."

GlobalCo director and Dairy Group chairman Henry Van Der Heyden said the deal made the local market a lot more competitive.

Under it, Dairy Group must divest its 50 per cent stake in NZ Dairy Foods.

As well, he said, GlobalCo was required to sell milk to competitors, "so there's relatively low barriers to entry."