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Officials and importers in dairy export markets are likely to keep a close watch over New Zealand's development of new rules for the management of the quota trade, worth hundreds of millions of dollars a year.
In a commercial arrangement with Westland and Tatua, Fonterra took over rights to the quota trade from the Dairy Board for a finite period. Those rights start expiring from this year and the phase-out is due to be complete by 2010.
The quotas provide guaranteed access to markets and generate significant quota-specific "rents" or extra profits that helped boost payout to Fonterra's farmers.
Rents are the extra margin available to the co-op because of the lower tariffs generally faced by products exported under quotas.
The effect of rents on New Zealand dairy farmer payout has declined dramatically in recent years, with the fall attributed to dropping in-market prices and a stronger dollar.
But rents still contributed 4c/kg of milk solids - or $48 million - to payout last season and rivals last week expressed an interest in getting a fair share of the quota market as Fonterra's rights expire.
Tatua, Westland, Open Country Cheese and Fonterra - through the Dairy Companies Association of New Zealand - have submitted a confidential paper to the Ministry of Agriculture and Forestry outlining their sometimes differing thoughts on the way ahead.
MAF principal adviser international policy George Rutherford said consultation with industry was due to get under way. New arrangements would probably require an amendment to the Dairy Industry Restructuring Act.
Rutherford said various trade issues - such as the development of new arrangements for handling the EU quota butter trade last year - had slowed progress on a new regime.
But there was now a need to get on with things. "People need business certainty, so the Government's very aware of that and wants to get it done," says Rutherford.
Fonterra will no doubt be wary of losing too much of the quota trade and the ability to make use of the in-market presence the trade provides.
But, clearly, the new arrangements will have to accommodate the interests of local rivals.
Also, Fonterra's recent loss of control of some of the importing of quota butter into Europe, and Canada's new moves to curb imports of milk protein concentrates, highlight the international sensitivities involved in the dairy trade.
It seems the Government and industry will need their wits about them as they sort through the issues if they are to ensure the best possible outcome for NZ Inc.
Meaty Matters
Farmer-owned meat processors Alliance and PPCS - with around $3 billion in combined annual turnover - are grappling with weighty trade issues of their own as they seek to improve the workings of a US joint-venture, the New Zealand Lamb Company.
Both parties scoffed heavily at a National Business Review report last week which had them locked in merger talks and quoting Alliance chairman John Turner as saying a tie-up was "inevitable in the long term".
Turner told the Business Herald that the two companies were only talking about how best to improve returns from the US joint-venture to help struggling sheep farmers. What he had said to NBR was that, if the US venture could be made to work better, and other successful joint operations could be established around the globe, then a merger may be advantageous many years down the track.
"We're talking decades ... the joint operations have to be proven to be successful first."
But there were no current merger talks and none were planned, he stressed.
Dairy Listings
Both Fonterra and Australian co-operative Dairy Farmers have been keeping zipped lips about speculation the latter may be snapped up in a trade sale or by private equity buyers.
The speculation about possible buyers in a trade sale centred on Fonterra, Coca-Cola Amatil and Goodman Fielder.
It was also suggested Dairy Farmers might be tempted to bring forward an A$1 billion share market listing (due by June next year) given the strength of the market.
Fonterra's chief executive Andrew Ferrier said last year the co-op was keen to expand across the Tasman, although none of the dairy sector players it might be interested in were publicly listed.
But he added: "If something is available at the right price and it makes strategic sense we'll do it."
Fonterra won't comment on the Dairy Farmers speculation, while an Australian co-op spokesman would only say: "Dairy Farmers remains focussed on its own agenda to maximise value for shareholders. This includes the completion of its two-to-four-year business restructure ahead of a listing on the Australian Securities Exchange."
Should a straight sale of Dairy Farmers be just talk, the final form of its listing - and what level of ultimate farmer control, if any, will remain - are issues Fonterra will be keenly interested in if it is eyeing the Australian business as a longer-term play.
The attention on Dairy Farmers and its listing plans comes as Fonterra is itself looking at the possibility of listing all or some of its own business.
In 2004, as a first step towards listing, Dairy Farmers co-op members voted to create a new milk supply co-op (DFMC) to operate separately from the Dairy Farmers milk processing business which is due to list.
The reason given for a Dairy Farmers listing is not that it would give greater access to capital but to allow co-op members "to access the underlying value of their equity stake in the business".
The DFMC supply co-operative would continue to negotiate collectively over milk prices for farmers, thereby retaining strength in numbers for farmers.
Some of the talk on this side of the Tasman has been about splitting Fonterra into a commodity milk business and a value-added ingredients and consumer products business, with the latter being listed.
However, the Dairy Farmers model offers another possible alternative that may be food for Fonterra thought.
Blood Matters
The remaining defendant in the so-called Powdergate case, Sean Miller, has lost an application for charges against him to be discharged.
Last year, in a case involving former Kiwi Group executives, six of Miller's co-defendants ended up pleading guilty to representative charges related to the illegal export of dairy products, while Miller pleaded not guilty.
In a recent district court judgment, Judge Roderick Joyce dismissed an application for a discharge by Miller.
A 10-day trial is now set down for early May.
After being fined last year for his role, the alleged ringleader of the Powdergate conspiracy Paul Marra claimed the dairy industry should be grateful he and the five others pleaded guilty, thus avoiding a lengthy conspiracy trial.
"If we had gone through the court case it would have been the biggest blood-letting the dairy industry has been through," Marra told the Business Herald last May.
Whether Miller's trial means the spilling of blood has merely been delayed remains to be seen.
