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Cooperative or Corporate Structure for Dairy Companies?

Greetings Readers,

Shareholders of NZ Dairy Group are busy deciding the future structure of their company following the failure of the Megamerger proposals.

For the past 125 years the principles of cooperative structure have been followed by most dairy manufacturing operations in New Zealand. A few corporate companies processing milk survived into the latter half of last century but generally farmer producers accepted ownership responsibilities for the processing of their milk through the elected directors of their cooperative boards.

The primary issues that NZDG seem to be facing up to is whether individual farmers now have the qualities to set the policies for the continued growth of their industry. Corporate experienced outside directors have been included on many company boards for the past 20 years but not in the proportions that are now being proposed for NZDG.

If the sole measurement of corporate success is return on investment as promoted by the Harvard Business School theory is applied to cooperative dairy companies then we are seeing the beginning of the end of a structure that served NZ well for the past century.

The example of Glaxo should be revisited by those who see the exclusion of farmer directors from the responsibilities of directing their own companies as being in the best interest of farmer producers. The danger is clear from the Glaxo model. ROI took Glaxo from a successful producer of retail packs of milk powder to a pharmaceutical giant with now no connection to its origional base.

Maximising return on raw product supplied by singularly and totallycommitted farmer shareholders is the success of a cooperative. Punting on share return by spreading investments over a range of risks is the domain of the stock exchange.

Dairy coop shareholders should know the difference.

Enjoy these clear fine winter days

The Editor

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