Rethink over dairy mega-merger

By PHILIPPA STEVENSON

The Dairy Board wants the new Coalition Government's backing for the planned mega cooperative industry merger - but any change to the official line is unlikely to stretch to open endorsement.

Agriculture Minister Jim Sutton says he is consulting fellow ministers over a possible revision of an official notice to the Commerce Commission about the dairy industry.

The commission has considered and rejected one merger application from the industry and is expecting another in coming months.

Under Section 26 of the Commerce Act, it is required to have regard to the economic policies of the Government given to it in writing by the Commerce Minister.

Last July, the commission was given a statement setting out the regulatory framework the previous Government would provide.

It expected the industry to increase the degree of share tradability and the unbundling of returns. Section 26 notices stay in effect until they are altered or revoked by the Government.

Mr Sutton confirmed the rethink, saying the notice "reads to me as much as an apology for the previous Government's policies as it is a matter to enlighten or inspire the Commerce Commission. To that extent, if it is not inappropriate then extensive tracts of it are irrelevant now."

Dairy Board chairman Graham Fraser would welcome a new-look notice.

He said the commission's independent role had to be respected "but a Section 26 statement supporting what we are seeking to do here would not be unhelpful, that's for sure."

Under its previous application the industry had been prepared to dispose of one of its local product companies, either Anchor or its principal rival, Mainland, which dominate distribution.

Mr Sutton said he would not advocate a new Section 26 notice that "would give grounds for thinking that I would be instructing the Commerce Commission to ignore the public interest in favour of sectoral interest in their analysis."

Meanwhile, Mr Fraser hopes an industry business plan, a five-year forecast of likely returns from industry integration now being prepared, will inspire merger negotiators for Kiwi Dairies and the New Zealand Dairy Group.

"By having the five-year forecast as firm as you can have it, we can get a fair idea of what the yearly numbers are," he said. "Once that is in front of the companies it may be the impetus they need to move positions so as to get an agreed merger. That's our hope."

Negotiations between the two big two players stalled before Christmas, prompting Dairy Group chairman Henry Van Der Heyden to call for rapid progress on the business plan.

Mr Fraser endorsed the suggestion and hoped negotiators would look at the gains outlined in the plan.

"The main reason for going to an integrated structure such as MergeCo is to make sure we are in the best shape we can be as we expand our business internationally."