United yet still divided

The 10 years before the emergence of dairy giant Fonterra were among the most turbulent in the New Zealand industry's 150-year history.

In 1990, there were 17 dairy companies. By the end of the decade, a series of aggressive takeovers and mergers had left two dominant farmer co-operatives - Waikato-based Dairy Group and Taranaki-based Kiwi Dairies.

Suddenly, the idea of a mega-merger, which was first floated years earlier by Sir Dryden Spring, was seen as achievable.

The logic for the move was strong: New Zealand farmers should be competing with the rest of the world and not each other.

But the rivalries between the dairying strongholds of Taranaki and Waikato had been built up over generations.

The mentality of the two groups has often been described as tribal and hostile.

The sharing of power within the new organisation was such a sensitive issue it threatened to derail the whole merger.

By mid-2001, negotiations were, in the words of former Dairy Board chief executive Warren Larsen, "On a knife edge".

The Serious Fraud Office now contends that one of the motives for illegal exporting was the desire to bolster the strength of the Kiwi Dairies as it jostled for power in the new organisation.