2001, Volume 4, Paper 45
ISSN: 2209-6612

Dairy Mergers and the National Interest

Robin Johnson – Consulting Economist, Wellington New Zealand

Abstract

In the normal course of events, the merger of the two major dairy cooperative companies and the Dairy Board would require the approval of the Commerce Commission. The Commission, in a preliminary determination in 1999, rejected the case for the merger in terms of the Commerce Act. Subsequently, in December 2000, the cooperatives by-passed the Commerce Commission by presenting their case for the merger and the absorption of the Dairy Board directly to Government. In April (2001), the Government announced that it had accepted the case put forward and, at the time of writing, was still awaiting the results of the required referendum of the dairy farm-suppliers (“the shareholders”) for their approval. Legislation is to follow.
In this paper, I want to examine the arguments for and against the merger from the national point of view and the proposed regulations that would make the merger more acceptable. We could allow a case that the merger brought some private benefits to dairy farmers if efficiencies can be gained and market returns enhanced above what they would have been. This would be all to their good and possibly benefit people in industries downstream from the farms.
The question for the government is what action is in the national good?. This involves an analysis of all the market inter-actions that would follow the merger and how they would affect the different groups in society as a whole. In its preliminary determination, the Commerce Commission weighed up these negative and positive effects and found the negative case predominated. Hence the subsequent approach to government. At the time of writing, government has agreed to the merger, presumably after due analysis of the arguments for and against. Read on for more details of the case presented and the government’s response to it.

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