Competition Policy Examined In After Global Dairy

Competition Policy Examined In Wake Of Global Dairy

The formation of Global Dairy raises legitimate questions for competition policy in New Zealand according to a study released by the Institute for the Study of Competition and Regulation (ISCR) today.

ISCR Executive Director Prof Lewis Evans and Victoria University’s Pro. Vice Chancellor Prof. Neil Quigley question whether the intervention threshold used in larger economies is relevant to New Zealand. They argue that the application of such criteria within New Zealand’s relatively small market may inhibit the emergence of companies that are large by international standards.

They argue that it is a mistake to consider the merger in isolation of de-regulation. The de-regulation of dairy exporting has profound implications for the industry. In their view the creation of Global Dairy Company is more like the privatisation of Telecom and deregulation of NZ Post than merger proposals normally considered by the Commerce Commission.

Assessing the Commerce Commission’s current evaluation of mergers, Prof Evans comments that: “For export industries the issue comes down to trading off any costs to the domestic market against benefits from better exporting performance”.

In its evaluation of the costs and benefits of a large export industry merger, the Commerce Commission should consider that small benefits to exporting may be all that is required to offset any possible detriments to the domestic market.

Prof Evans questions the Commerce Commission’s role in assessing the cooperative’s production efficiency given it exports virtually all its product and suggests it amounts to little more than a check on the rationality of suppliers and their assessments as the company’s owners.

The divestment of domestic supplier Dairy Foods does little to reduce domestic market concerns while it is reliant on Global Dairy for supplies of raw milk and some milk products, he says. The study says these concerns can only be addressed by behavioural undertakings in the regulatory package and the potential to import dairy products and emergent competition that is much more likely now that exporting is to be de-regulated. These will provide market discipline on domestic prices.

“Mergers that are attached to major (de)regulation are not necessarily best considered by the Commerce Commission,” he said.

Parliament’s Primary Production Select Committee is currently hearing submissions on the Dairy Industry Restructuring Bill. When enacted that legislation will provide the regulatory framework for the dairy industry.

The study, “Global Dairy and Competition Law” is one of 12 compiled in Watershed for New Zealand Dairy Industry by ISCR’s Profs Lewis Evans and Neil Quigley. The Institute presented a selection of its findings on the restructuring of New Zealand’s dairy industry at a seminar in June this year and endorsed the Global Dairy proposal as the preferable model for deregulation of the industry.

ENDS

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