Dairy Industry Welcomes Regulatory Package

Media Statement

Monday 9 April 2001 For Immediate Release

DAIRY INDUSTRY WELCOMES REGULATORY PACKAGE ANNOUNCEMENT

The dairy industry has welcomed this afternoon¡¦s announcement by Prime Minister Helen Clark of Cabinet approval for a new Regulatory Package for the industry.

¡§The Government¡¦s Joint Working Party has been a rigorous and challenging process,¡¨ John Roadley, Chairman of Global Dairy Company, said from Europe today.

¡§It has considered in great detail all the public policy issues arising from our merger proposal and the subsequent restructuring of our industry. We have achieved a package that does not compromise either the industry¡¦s commercial objectives or the Government¡¦s public policy objectives and one that will allow the merger to go to a shareholder vote in May.¡¨

Mr Roadley emphasised that the final decision on the merger would be made by New Zealand dairy farmers.

¡§This is another very important milestone in the overall merger project but there is still plenty of work to be done yet. Later this month, shareholders will receive information on voting along with further technical, legal and financial information on the merger,¡¨ he said. ¡§A further round of shareholder meetings to discuss those matters will begin at the end of April.

¡§This timeline will allow the vote to be held in mid-May in good time to know whether the merger is to proceed in advance of the new season, which starts on 1 June.¡¨

Mr Roadley said it was to the Government¡¦s and Officials' credit that so many complex issues had been worked through in such detail in such a reasonable timeframe.

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¡§All parties involved worked long and hard to ensure that the package was given rigorous scrutiny, numerous refinements were made during the process, and we are confident that we now have a package that will serve all interests well.¡¨

Key aspects of the Regulatory Package are:

„X The merger of Kiwi Co-operative Dairies and New Zealand Dairy Group, incorporating the assets of the New Zealand Dairy Board, is deemed to be authorised under the Commerce Act, subject to the remainder of the Regulatory Package being honoured by the industry

„X The Commerce Act will continue to apply to all Global Dairy Company's future behaviour

„X The Regulatory Package complements and adds to the arrangements already proposed by Global Dairy Company in its draft Constitution

„X Anyone will be allowed to export dairy products from New Zealand one year after the merger, with special provisions during the first year for open exporting by existing permit holders and Westland Dairy Co-operative, except in relation to specified quota markets

„X An independent management system for Quota Export Rights will be progressively introduced by the Government six years after the merger legislation is enacted. In the meantime, Global Dairy Company will hold the quota and enter into commercial arrangements to ensure that minority co-operative suppliers receive a fair share of the quota market returns

„X There must be open fair-value entry and exit for supplying shareholders from Global Dairy Company, with the Regulatory Package providing that the company must maintain open entry and exit provisions for supplying shareholders

„X Global Dairy Company must accept all new suppliers who apply by the end of February in any year, subject to normal minimum quantities and milk quality requirements and provided that the transport costs in collecting the supply are no greater than another supplier supplying that factory. If Global Dairy Company does not have capacity, it can delay acceptance by one year but no longer
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„X Any supplier may exit by giving notice by the end of February in any year, unless they have a longer term contract

„X The share price must be the same at any given time and in any given region, for both new entrants and those leaving the company

„X Global Dairy Company must offer one-year supply contracts to all suppliers, enabling suppliers to switch easily to a competitor. It may offer longer-term contracts but the regulations will limit how many long-term contracts may be offered in any region

„X Supplying shareholders will be allowed to supply up to 20 percent of their milk to a competing company, without being discriminated against by Global Dairy Company, provided that they install a separate tank

„X Global Dairy Company must sell New Zealand Dairy Group¡¦s 50 percent shareholding in New Zealand Dairy Foods within a year of the merger to provide competition in domestic markets

„X To ensure competitors such as New Zealand Dairy Foods and specialty product manufacturers such as Kapiti Cheese have competitive supply of milk, Global Dairy Company is required to supply up to 400 million litres of raw milk to customers in New Zealand and at a fair price

„X Regulations will stay in force in each of the North and South Islands until there is significant competition in that Island. Some aspects of the regulations will need to stay in force until the tests for both Islands are met as they cannot apply to one Island and not the other

„X The Dairy Board will continue to fund industry good activities for one year, after which it is intended a levy will be established under the Commodity Levies Act to fund an organisation with the working title of Industry Good Inc

„X The Livestock Improvement Corporation will be set up as a co-operative owned by dairy farmers and sharemilkers in proportion to their patronage

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More detailed information on the Regulatory Package is available this afternoon at www.globaldairy.co.nz and will be mailed to shareholders later this week.

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