Fonterra: The economic effects of the dairy industry merger

Abstract

In 2001, the New Zealand government passed the Dairy industry Restructuring (DIR) Act, exempting the dairy industry from certain sections of the Commerce Act and paving the way for the industry wide merger that was to create Fonterra. In a purported market economy such as New Zealand's, the passing of legislation to encourage the creation of a monopoly is a significant event. The decision to override the Commerce Commission and the existing anti-trust legislation should not be taken lightly. The consequences of this merger are all the more important as the dairy industry generates approximately seven percent of GDP and consequently has a significant influence on the national economy. This study will use the draft determination of the Commerce Commission to analyse the effects of the merger on the New Zealand economy.