US chief extols advantage in merger of dairy co-ops

By PHILIPPA STEVENSON agricultural editor

Establishment of New Zealand's proposed Global Dairy Co would further strengthen alliances with the world's biggest dairy farmer co-operative, Dairy Farmers of America (DFA), its chief says.

Gary Hanman, president and chief executive of the $US6.7 billion ($15.3 billion) company, said the ability of the two companies to talk "farmer to farmer without any type of governmental agency in between" would be good for the growing business between the two countries.

"That's the way they do business at home. Any business relationship is based on friendship, [and] respect.

"We need to shake someone's hand, look him in the eye, see what he's made of, see if his word's good. This [farmer-to-farmer relationship] is a furthering of that comfort factor."

Mr Hanman, who has headed DFA since it was established from the merger of four regional co-operatives in January 1998, is on an eight-day visit to New Zealand with 15 members of the company's executive committee.

The Dairy Board and DFA have two joint ventures - in grating cheese and dairy product ingredients.

Mr Hanman said DFA had sold its products to Third World markets through the Dairy Board because it had the international marketing expertise DFA lacked.

A unique factor of the American merger was that it has operated since with a board of directors of up 118 members. This will reduce to 48 at the annual meeting in March, when for the first time directors will be elected by its 28,000 members, residents of 48 of America's 50 states.

Mr Hanman said to create DFA without "political problems" every director on the constituent co-ops had remained, as did existing delegate systems.

Yesterday in Wellington, he welcomed the proposed merger of New Zealand Dairy Group and Kiwi Dairies and their integration of the Dairy Board.

"We would hope they would go ahead and finalise their merger discussions." He hoped for new alliances with GlobalCo.

"We believe that any cooperative extension of our barnyard gates makes money for farmers, and so we've been able to make money for our farmers by joining hands with New Zealand domestically in these two joint ventures, and we think it makes sense if we can get it altogether to do more than that."

The DFA merger showed "that you spend a lot of time on the detail of mergers that in the end is not that important."

It was important for farmers to "join hands and move together to the market place" but not to get hung up over the value of assets, brands and the maintaining of position and jobs.

It was necessary to settle those issues "without giving away the farm," but more important to keep eyes on the goal.

"If you can have a shared vision of what you want to become you can get over these hurdles. There's usually more than one way to work out the differences with value, leadership, name, location or whatever.

"Our experience has been that if you can keep your eye on the vision ... you can solve these intermediate problems."

Mr Hanman said that in the US, as in a large part of the world, the dairy industry's retailer customers had consolidated into fewer but bigger businesses.

The large retailers, such as WalMart, expected rationalisation of their suppliers, too, because they did not want to do business with many suppliers in regional markets. They preferred to work with a national supplier.

The formation of DFA was driven by the customer consolidation "and I think that would be some of the same issues facing the dairy farmers of New Zealand," he said.

Mr Hanman said his company would also encourage the transtasman industries to "join hands if the leaders have a shared vision."