Cabinet has decided to exempt the dairy industry merger proposal from provisions of the Commerce Act.

Prime Minister Helen Clark and Agriculture Minister Jim Sutton said today that the proposal, which would merge Kiwi Dairy Company, New Zealand Dairy Group, and the Dairy Board, was possibly the largest merger proposal in New Zealand's business history.

"This merger will provide a way of resolving the dysfunction created by the industry's regulations.

"The dairy industry is unique in its highly regulated structure, marketing and commercial arrangements. Any change will require legislation to give it effect. Exempting the merger from the business acquisition provisions of the Commerce Act would facilitate the early and certain reform of the industry's regulatory environment."

Helen Clark and Mr Sutton said now that Cabinet had decided the merger proposal would not go to the Commerce Commission, the way was clear for farmers to decide whether it should proceed.

If the merger proposal is approved by 75 per cent of farmers in both dairy companies, then legislation would be introduced into Parliament and it would go through a full select committee process.

"It is important that this proposal is thoroughly discussed and debated, both inside and outside the dairy industry."

The select committee process could take three months, which would mean that any enactment of legislation would be after the June 1 start-up date proposed by industry.

Mr Sutton discounted this having any material effect on the merger process, saying that there had been many dairy mergers in the past that have been finalised around September but retrospectively implemented from June 1 ? the date marking the start of the dairy season. Helen Clark and Mr Sutton said a comprehensive regulatory package had been developed in consultation with dairy industry officials in order to mitigate any potential negative consequences of the merger.

They said that once the merger was complete - depending on other criteria being met - Global Dairy Company would be exposed to the full disciplines of the Commerce Act, which currently do not apply to the Dairy Board.

The Global Dairy Company would be about 95 per cent of the New Zealand dairy industry.

It would account for about 7 per cent of GDP, around 20 per cent of total exports, around 96 per cent of dairy exports, around 96 per cent of the New Zealand raw milk market, and around 50 per cent of the domestic dairy market.

ENDS

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