Domestic Market For Milk

Media Statement

Wednesday 11 April 2001 For Immediate Release

DOMESTIC MARKET FOR MILK

Global Dairy Company has moved to ease inaccurate impressions about the domestic market for milk.

Global Dairy Company Project Director Graham Stuart said today that the Regulatory Package announced by the Government this week would promote greater competition and would ensure that Global Dairy Company could not dominate the domestic market.

“The merger and the Regulatory Package are about the deregulation of the dairy industry,” Mr Stuart said. “That means there will be more scope for competition in the domestic market than currently.”

Mr Stuart said that even under current rules anyone could enter the New Zealand dairy market. A good example was the recent initiative in Palmerston North to provide town milk supply which had been established for as little as $10 million. Initiatives such as that could become commonplace.

“After the merger, there will be even more incentive for competitors to enter the market because – for the first time - they will be able to export dairy products from New Zealand, thanks to the removal of the single-desk legislation,” he said.

“We can expect to see New Zealand or foreign companies enter the market, buy milk from farmers, manufacture it into dairy products and export them from New Zealand. With that ability to export, there will be much more incentive for them to enter the New Zealand domestic market as well.”

Mr Stuart said that the Regulatory Package contained specific measures to promote a more competitive domestic market.

“We are required to sell to a competitor the 50 percent shareholding in New Zealand Milk Products currently owned by New Zealand Dairy Group. It will start out with approximately 40 percent of the market with the domestic rights to key brands including Anchor, Fernleaf and Fresh ‘n’ Fruity. It will be a strong competitor.”

Mr Stuart acknowledged that New Zealand Milk Products and other competitors would initially be largely dependent on Global Dairy Company for raw milk supply but said the Regulatory Package had comprehensive measures to address the issue.

“Competitors will be able to get milk from us, from our suppliers and from farmers that chose to leave us,” he said.

“We will be required to sell raw milk to anyone that wants it at basically a commodity price. We will have to sell any individual customer up to 50 million litres of raw milk a year and the market as a whole up to 400 million litres of milk a year. Four hundred million litres is more than New Zealand’s entire annual domestic market for milk and other dairy products.

“Our suppliers are allowed under the Regulatory Package to supply our competitors up to 20 percent of the milk produced on their farms without any penalty from Global Dairy Company. That is a very strong protection that we believe is almost unique in the world.

“Dairy farmers will also be able to leave Global Dairy Company and – for the first time – take the fair value of their investment in the business with them. They will then be free to invest in another business and supply their milk to anyone from global giants such as Nestle to town milk initiatives such as that in Palmerston North.”

Mr Stuart said it would be reasonably straightforward for a competitor to become well established in New Zealand.

“There are approximately 14,000 dairy farmers in New Zealand and around 96 percent of what they produce is exported,” he said. “That means that a competitor could supply the entire domestic market for dairy products from as few as around 450 average-sized farms. The Auckland market could be supplied by around average-sized 170 farms. Initially, of course, such a competitor could access milk directly from Global Dairy Company under the 400 million litre rule.

“Global Dairy Company will be forced to stay on our toes at all times in a highly-competitive market.”

Mr Stuart said Global Dairy Company would not be commenting directly on the decision by New Zealand Dairy Foods to increase the price of a brand of milk.

“New Zealand Dairy Foods is an independently-managed company and made the decision to increase its prices on its own accord. It has nothing to do with the merger,” he concluded.

END

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