Big is not necessarily better.
That was the message from Alliance Group independent director
Graeme Milne to suppliers attending the company's inaugural
Pure South conference in Queenstown this week.
Mr Milne, who has a 30-year involvement in the dairy
industry, was chief executive of the New Zealand Dairy Group
prior to the formation of Fonterra.
Among various other directorships, he is chairman of Mid
Canterbury dairy-processor Synlait. He was appointed to
Alliance Group's board last year.
In his address on the last day of the three-day conference,
Mr Milne said while various commentaries suggested big was
better, referencing the dairy industry - ''actually, we find
in the dairy industry, smaller is better''.
He cited the Tatua Co-operative Dairy Company, near
Morrinsville, founded in 1914 and the oldest independent dairy
company in New Zealand. Last year, Tatua's payout was 40%
higher than Fonterra, he said.
He acknowledged that Fonterra was a ''fantastic company'' and
a ''huge asset'' to New Zealand.
In 2000, there was one seller of dairy products out of New
Zealand; now there were about 50 exporters and more companies
establishing all the time.
''The world didn't fall apart when the dairy industry
increased the number of exporters,'' he said.
Dairy was a vibrant industry in New Zealand and new players
were adding to that. It was heading towards a structure very
similar to the New Zealand meat industry, he said.
There was huge volatility in the dairy industry - ''in the
dairy industry, volatility does really mean volatility'' -
more so, he believed, than in the meat industry.
He did not believe there should be any government
intervention in the red meat sector.
Mr Milne, who described himself as ''very passionate'' about
co-operatives, said Alliance Group was important to New
The company was producing a niche export product but the
number of people who could afford it was ''rapidly
The co-operative was ''wonderful'' except not strong enough.
He believed in the co-operative principles and was pushing
them at the board table.
When it came to processing, Mr Milne believed Alliance Group
was ''pretty damn good'' but he did have an issue with the
company's safety performance.
While acknowledging that it was a very difficult environment,
with a lot of people and a lot of knives and ''sometimes
things happen'', safety needed to be taken very seriously and
He thought the company was good with its sales and marketing
but there was an opportunity ''to be excellent'', he said.
He did not think the company scored highly in communications
and could do ''a lot better''.
''We've got to communicate with shareholders and then you'll
feel the confidence we all feel in this company,'' he said.
In his closing address to the conference, Alliance Group
chief executive Grant Cuff said the company had a good base
but an ''absolutely tremendous'' future.
Earlier, the company's management and chairman Murray Taggart
responded to questions raised by suppliers.
Asked Alliance Group's position on industry consolidation, Mr
Taggart said that clearly, with declining stock numbers,
there was significant overcapacity.
''In saying that, everyone has a different view on what is
overcapacity,'' he said.
There were only two ways to achieve rationalisation in an
industry - either with ''lots of cash'' or through
legislation, and legislation was not going to happen.
Alliance Group was ''reasonably proactively involved'' in
pursuing rationalisation and consolidation options, but they
needed to stack up, he said.
Looking back in history, there had been ''big bang''
consolidations and incremental ones.
While he believed incremental was the safer way to go, that
did not completely rule out a bigger option if it stacked up.
Not every farmer believed in co-operatives and not every
farmer valued relationships. Alliance Group wanted to build
its business around the ''relationship farmers'' so that the
end point was a group of committed farmers, he said.
When it came to diversifying, Mr Taggart said the company had
an open mind about it, but there had to be a very compelling
reason to stray outside core business.
Jonathan Wallis, from Minaret Station, on the western shores
of Lake Wanaka, which supplies stock to Alliance Group, said
the company had sound governance.
If suppliers thought more farmer representatives were needed
on the board, they were wrong, he believed.
New Zealand currently produced food for 30 million people in
a world of more than seven billion. It could not take the
approach of feeding everyone, nor should it.
The product needed to be placed strategically, with a great
story behind it, at the high end of the market, in front of
discerning consumers who would pay to consume a quality
product from New Zealand, he said.