There is an air of inevitability about a dairy industry mega cooperative. Most farmers recognise that the demands of export competitiveness mean nothing less than integrated manufacturing and marketing. They are impatient for progress. Why then is the union of the New Zealand Dairy Group and Kiwi Dairies, of Taranaki, proving so frustratingly elusive? A failure to agree on valuations for the companies is given as the cause of yet another stalemate in the protracted negotiations. More fundamentally, the imbroglio suggests that substantial egos are overriding common sense.
If such is the case, those driving the negotiations need to take a hard look at the cost, real and potential, of their conceit - both to farmers and New Zealand. The dairy industry establishment board's business plan reckons that a mega cooperative could achieve annual gains of $300 million. The prediction, which is in line with earlier projections, equates to an extra $10,000 a year to the average farmer. Redundancy payouts mean, however, that the full benefit of cost savings and increased earnings will not arrive until the third year of integration. At that time, the added income will benefit not only the farmer but also businesses in struggling small-town New Zealand. The present bickering is postponing that ripple affect.
Added to that is the cost of lost export opportunities. Competition is building rapidly, driven by the merger of overseas dairy companies in countries such as Denmark and the United States. Those companies have recognised that critical mass is needed to compete with conglomerates such as Kraft, Nestle and Parmalat. Most disturbingly, their new-found purpose is taking them into markets and niches that New Zealand would like to occupy. The four cooperatives that now comprise Dairy Farmers of America, along with MD Foods and Klover in Denmark, had, like Kiwi and Dairy Group, a history of rivalry. In all likelihood, they had also indulged in one-upmanship, a practice that often gives farmers an inflated view of their cooperative's worth. They, however, succeeded in overcoming such obstacles within months.
The circuit-breaker - and the logical way out of the New Zealand impasse - was the use of independent arbitrators to value each company. These analysts brought expertise in brokering similar deals that could be respected by both companies. Those involved in the negotiations can easily assure farmers that the new stalemate does not torpedo the mega plan. But that record has been around the turntable too many times. Egos and agendas persistently get in the way. The cooperatives have previously declined to call in independent analysts. Now, they surely have little choice.
The need for progress is accentuated by an increasingly tight timetable. The industry needs Commerce Commission approval for the proposal and 75 per cent farmer support by September 1. At that date, special enabling legislation lapses. The commission found against the mega cooperative in an interim judgment, suggesting that the public benefits did not outweigh its monopoly concerns. A chastened industry has presented a more detailed business plan to the watchdog in an attempt to extract a change of mind. However, even if the commission were to again find against the mega cooperative, it would be logical for the Government to use its powers under the Commerce Act to override it.
The National Government exercised just that power almost a decade ago when dairy company mergers were gathering pace. It recognised the imperatives of national competitiveness. Likewise, farmers understand that. Some of their leaders, however, have let other, more personal concerns, muddy their vision. They need a sharp reminder of where the interests of farmers, and this country, lie.
<i>Editorial:</i> Farm leaders need sharp reminder
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