In June 2001, 84% Of the farmers Of the two biggest New Zealand dairy co-operatives, the

New Zealand Dairy Group and Kiwi Co-operative Dairies, voted supportively to merge their
operations and together with the New Zealand Dairy Board (NZDB) form Fonterra
cooperative Group .

By October 2001 the company was officially formed, the official name announced and the
people to lead the company been named. The merger not only saw the birth of one Of the five
biggest dairy companies in the world, but also the removal Of the NZDB's statutory exporting
monopoly powers and therefore the deregulation Of the New Zealand dairy industry.

formation Of Fonterra is the latest Step in the process of consolidation and rationalisation
Of the New Zealand dairy companies that has caused a reduction in the number of dairy
cooperatives from 180 in 1960, to 14 in 1994, and finally three in 2002: Fonterra, Westland
and Tatum

The New Zealand dairy industry beginnings are rooted in the 1870s, with the first dairy
cooperative factory being set up in New Zealand in 1871 4. With the expansion of dairying the
number of factories increased greatly with the proportion of co-operative factories increasing
relative 10 pmprietal)' ones. Historically the indusLIY was established along local lines, with
even the smallest communities having their Own dairy company.

The New Zealand government strongly encouraged the formation 0t butter and cheese
factories from 1880 onwards, and as a consequence, co-operative dairy companies sprang up
all over the country. The Dairy Industry Act 1908 consolidated all previous legislation and
also provided for the registration of co-operatives.
In 1923 the government established the Dairy Produce Export Board, popularly know as the
'Dairy Board' to act as the single export seller. The New Zealand Dairy Board (NZDB) was
formally established in 1961 and had monopoly rights over the purchasing and marketing of
all dairy products exported from New Zealand.

The exporting nature Of the New Zealand dairy industry goes back to its very beginnings with
the introduction Of cheese and butter-making techniques and the export Of refrigerated
cargoes following the first shipment Of frozen lamb in 1882 (Enderwick & Akoorie, 1996).
By 1909 New Zealand was producing 51 million pounds Of butter and exporting half Of it,
mainly to the UK, Australia and South Africa; cheese production was 37 million pounds, Of
which more than 34 million was exported.

Since the 1880s, when the first frozen shipments were sent to Europe to the early 1970s, New
Zealand dairy companies sold almost all their production to the United Kingdom, which
meant that when the UK signalled its intention Of joining the European Union in 1973, New
Zealand dairy companies found themselves at a crossroads. As a response to this challenge the
NZDB initiated a strategy of market diversification that saw the exports Of New Zealand
dairy products increase drastically.

In 1994, the commitments of the agreement On dairy products made at the Uruguay round Of
the negotiations Of the World Trade Organisation (WTO, in those days the GAIT) meant,
theoretically at least, an expansion of the accessible dairy market from NZS83 billion to
NZS147 billion.

•Ille question Of reforming the Structure Of the NZDB surfaced with the advent of economic
liberalisation in 1984 and deregulation Of Other sectors Of the economy. The formation of
Fonterra and the incorporation Of the NZDB into its structure in 2001 marked the end of its
50-year history Of control and marketing Of the NZDB as the sole statutory authority for the
export of New Zealand dairy products.