Tardy pace of leaders milks cash off farms

By Philippa Stevenson

Between the lines


Can some dairy industry leaders look themselves, let alone their company shareholders, in the eye?

The question arises because, since 1995, they have known that at least $300 million a year - roughly $21,000 per farmer - could be added to the payout if they ran their industry more efficiently.

Yet, they will go into the new century having captured only a fraction of that and having made little effort to get the rest.

The great mega co-op plan is not new. It is four-years-old, born of a study by four manufacturing companies - Bay Milk, Alpine, Tui (since merged with bigger players) and Northland.

The only major progress since the idea was presented to the Dairy Board in June 1995 has been more costly investigations which have confirmed the original diagnosis of an industry at a crossroads, and that even more money could be made than first thought.

Nowadays, its calculated that cost savings in such areas as processing, administration, stock management, and transport are not only likely to tip the scales at around $350 million annually but there would also be a bonus of another $150 million as a result of the "catalytic event" of putting a new structure in place.

If $500 million a year was going begging most people would consider it the duty of responsible leaders working for their shareholders to move heaven and earth to pick it up, and that dairy farmers, who are seeing their milk value fall by 2 per cent a year, would be breaking down the door to get it.

The reasons it has not yet come to pass, and why it has taken serious head banging at a meeting held only this past weekend to prevent further delays, lie in the murky depths of the industry.

Four years ago, in a prescient paper on the prospects of the then new idea, one company's board was told that the "parochial" Kiwi company "would be more likely to take an entrenched negotiating position delaying progress and settlement."

Dairy Group claimed "to have initially supported the one-company proposal, but rejected it following a study" though there were doubts about the comprehensiveness of a study seen only by the CEO and chairman.

Shareholders were likely to give widespread but not unanimous support because many believed "that the industry is considerably more integrated than it is and therefore would perceive the changes as natural and non-revolutionary. Others will be concerned about the possibility of a reduced drive for efficiency and less choice, although choice has already been eliminated for virtually all farmers."

The paper concluded that the proposal was rapidly approaching "now or never."

If industry leaders do not wish to trap themselves, and their shareholders, in never-never land they must chuck their baggage and go for the money.