Dairy operator cites NZ success story in support of WCB bid

Murray Goulburn must convince a former South Australian barrister, an economics professor and a top corporate lawyer that any loss of domestic competition from its acquisition of Warrnambool Cheese & Butter is insignificant compared with the benefits increased scale will yield for the national economy and the Australian dairy industry.

Justice John Mansfield (pictured), president of the Australian Competition Tribunal, will be joined by Novartis Group general counsel Ray Steinwall and University of South Australia professor David Round in a landmark court proceeding weighing the public benefits of Murray Goulburn's proposed takeover against competition issues.

Murray Goulburn, which is Australia's biggest dairy exporter, is locked in a $500 million-plus takeover battle for control of listed rival WCB with Bega Cheese, of NSW, and Canadian behemoth Saputo.

Bega and Saputo have cleared their respective regulatory hurdles and declared their offers unconditional, while Murray Goulburn needs the tribunal's blessing before its offer can be accepted.

Murray Goulburn contrasts New Zealand's staggering success in dairy - embodied in giant co-operative Fonterra - with the sharp decline in Australian milk production and share of the world dairy trade.

From 2002 to last year, Australia's share of global dairy trade has fallen from 15 per cent to 7 per cent and the nation's annual milk production has fallen from 12.3 billion litres to 9.2 billion litres. Over the same period, New Zealand's share of global dairy trade has risen from 30 per cent to 37 per cent while milk production has grown from 13.6 billion litres to 19.1 billion litres.

One of the public benefits the Victorian dairy farmer co-operative claims the merger will deliver is "enhancing the standing and competitiveness of Australia's dairy industry in global trade through the efficiencies that will strengthen Australia's largest dairy producer, Murray Goulburn".

In putting together its case, Murray Goulburn has commissioned independent expert reports from former Fonterra chief executive Craig Norgate and dairy industry expert Christopher Phillips.

When Mr Norgate was Fonterra's inaugural CEO in 2001-03, Fonterra had revenues of $13.9 billion and was responsible for processing and marketing more than 95 per cent of New Zealand's entire milk pool.

Fonterra was created by the merger of three of New Zealand's largest companies and required an act of Parliament.

Mr Norgate says in his report that many of the competition issues he faced are similar to those presented by the proposed Murray Goulburn and WCB merger.

"Within two years of formation, Fonterra had delivered the cost savings and revenue benefits promised and had become a true 'national champion' for the New Zealand economy," Mr Norgate said.

He said many of the benefits achieved by Fonterra would flow to Australia in the event of a Murray Goulburn tie up with WCB. At stake is WCB's 900 million litre annual milk pool, which would push the combined group into the top 20 global producers and WCB's state of the art processing facility at Allansford.

Murray Goulburn admits there are competitive issues to consider but argues the merger "will not generate any meaningful lessening of competition".

The claim jars with the findings of the Australian Competition and Consumer Commission when Murray Goulburn tried to buy WCB for $180 million in 2010. In its 2010 statement of issues, the ACCC raised concerns about reduced competition for the acquisition of raw milk in south-west Victoria.