Watchdog snaps at GlobalCo

By PHILIPPA STEVENSON Agricultural editor

Manawatu farmer Malcolm Bailey has just been elected to the Global Dairy Co shareholders' watchdog council and is already baring his teeth.

The former Reserve Bank economist and Federated Farmers president has told a parliamentary select committee that he has grave fears for a dairy industry dominated by GlobalCo.

"My fears are based on the likelihood that GlobalCo will become an inefficient monopoly that will devote effort to preserving its near monopoly position at the expense of maximising shareholder/supplier returns," said Mr Bailey, New Zealand's special agricultural trade envoy.

For decades the industry had been captured by the view that competing exporters would drive down export prices, he said.

Critics had argued that the single-selling system was clumsy, that it lacked innovation and efficiency and that returns were not being maximised.

Then, in 1999, dairy farmers were told by former Dairy Board chairman John Storey that inefficiencies were costing the industry $1 million a day, or about $25,000 a farmer a year.

Mr Bailey said the root of these problems was the regulation of dairy exports.

"The continuation of these regulations well after huge deficiencies were exposed is a public policy fiasco that reflects badly on Parliament and the governance of the dairy industry."

He said the enormous amount of prescriptive regulation in the Dairy Industry Restructuring Bill would frustrate GlobalCo's ability to act commercially but would be insufficient to foster much-needed competition.

Mr Bailey said GlobalCo was now seeking to water down and change key elements of the regulatory package to which it had agreed.

The Government's response should be to refer the merger to the Commerce Commission. He urged the committee to allow free trading of GlobalCo shares and to vest the rights to quota markets directly with dairy farmers.

"On the day that New Zealand Dairy Group, Kiwi and the Dairy Board actually merge, the new entity will not have one more dollar of capital and not one new idea and essentially [have] the same people who have overseen the waste of recent years.

"We can only hope that GlobalCo performs much better than commonsense tells us it is likely to do.

"Little Tatua dairy company, which has been leading the payout stakes for a decade, is living proof that being big isn't a prerequisite for success."