Till the Cows Came Home

By Clive Lind

Till the Cows Came Home is the story of the New Zealand dairy industry - and the huge challenges faced as it became the world's largest exporter of milk products.

In the 1960s New Zealand had 100 dairy companies, almost all of them small and manufacturing just one or two commodities. 95 percent of all production was bound for the British market. Then a dark cloud loomed over what had been a cosy arrangement. Britain decided to join the Common Market and cut imports from its former colonies. Trade diplomacy kept the door ajar, but the writing was on the wall.

Till the Cows Came Home tells how new products were developed and new markets opened - and how, sometimes with others and sometimes alone, New Zealand fought a long battle for fairer international trade laws. Later, as dairy companies became fewer and larger, the future of the Dairy Board as sole exporter came increasingly under the spotlight. The industry’s structure became dysfunctional and de-regulation inevitable.

The final chapters tell the inside story of the intense personal and political battles that developed as the need to form one company gradually became clear.

• Language: English
• Publisher: Clive Lind
• Release date: Mar 6, 2014
• ISBN: 9781310186431

Book preview

No momentous event marked the beginning, the time when New Zealand was put on notice that its future prosperity and comfortable place in the world were under threat. But what would later be recognised as the end of traditional thinking about trading habits and economic partnerships began in the middle of the 20th century.

It started with important changes elsewhere. In 1957, twelve years after the end of World War 2, six nations — including France, Italy and Germany — signed the Treaty of Rome to form the European Economic Community, saying that they sought an ever closer union among the peoples of Europe, who throughout history had warred among themselves. They promised to expand so that member countries could trade effortlessly with each other — and for agricultural products, largely to the exclusion of anyone else.

That had initially seemed a remote threat. Great Britain, the Mother Country and New Zealand's greatest trading partner, was not among its members — and it said it had no intention of joining.

Even so, New Zealand's farm exports — the economic anchor of the South Pacific nation — were no longer providing the comfort they once had. The country's high standard of living declined as the 1950s progressed, and led to a balance of payments crisis in 1957.

Dramatically lower prices for butter and wool that year forced the government to heavily increase taxes on beer, cigarettes and cars, along with other measures. The Labour government wanted the country to live within its means, but Arnold Nordmeyer's 'Black Budget' of 1958 condemned his government to just one term.

Then came a defining shift. In 1961 Britain changed its mind about Europe and sought membership of the EEC. Politicians decided it had been a mistake to stand aloof. EEC countries were experiencing spectacular economic growth; Britain was not. The French president, General Charles de Gaulle, was talking up the virtues of a united Europe.

Britain's change of heart was a hugely disconcerting prospect for New Zealand. Its largest trading partner was applying to join a protected market where all parties were committed to looking after themselves first and foremost. Fortunately, de Gaulle was even more uncomfortable with the application and spurned the bid with a firm Non!

For most New Zealanders, Britain's move had been an unexpected and unpleasant jolt. The news of its rejection was welcome, but wiser heads had little doubt that one day, not too far away, Britain would be accepted.

New Zealand needed to become a very different country. The dairy industry was one of its largest export earners. As night followed day, the changes ahead meant that industry and its farmers would have to play a pivotal role in the nation's long and arduous journey to full economic independence if they were to continue to hold such a dominant position in their nation's economy.

CHAPTER 1

In a rugged land

of milk and milestones

If the English explorer Captain James Cook had been an even greater risk-taker than his exploits demonstrated when he revisited the top of the South Island in 1777, he might be also remembered for introducing the dairy industry to New Zealand. But he kept on board the young bulls and heifers he had brought with him on the voyage, although he did have his men find grasses to nourish them. The Maori who greeted him and his crew lived largely on a diet of fish, meat and vegetables, and had no dairying history. Cook continued on to Tonga where he presented a bull and heifer to that island's king.

The honour of starting the dairy industry would go to the far-sighted if not universally loved missionary, Samuel Marsden, who is credited with landing the first bull and two heifers at Kororareka in the Bay of Islands in 1814. Nine years later he had a respectable herd of some fifty animals. To all who would listen, the Australia-based Marsden expounded the future benefits to be gained from the wide agricultural possibilities of New Zealand, dairying among them.

By the time Marsden died in 1838, cattle and other animals, largely from Australia, had been introduced in several parts of the country as settlers realised the opportunities before them. First, of course, they had to procure land from Maori, and that was sometimes accomplished unjustly. Europeans, immigrants from countries where farm ownership was often impossible, clashed culturally with a people who valued their land more for communal endeavour and collective well-being than for commercial opportunity.

Two years after Marsden's death the Treaty of Waitangi was signed which included giving Britain the power to buy land from Maori to sell to settlers. A legal structure was finally in place — even if in too many cases sales would lead to grievance, bitterness or warfare. From that time the land rush was on and dairying was on the list of potential uses.

Milking cows for human consumption could be traced back at least 6000 years. There were excellent reasons for such early interest. Milk was one of the most nutrient-rich foods on the planet. It was one of the few foods that a new-born human could survive on alone, a raw material that provided carbohydrates, fats, proteins and minerals.

In the new British colony of New Zealand, conditions proved ideal for dairying. Pioneer after pioneer was to discover that burning off tussock and bush and then ploughing the soil produced prime growing conditions for English grasses and lucerne. Initially, surplus milk could be turned into butter or cheese for household use or local sale, but opportunities were limited and sellers numerous.

Highly nutritive milk had a shelf life of only about a day, so it had to be turned quickly into products of value that would keep longer. From the beginning, in a sparsely populated land with poor transport links, the only real possibility for growth was through building a substantial processing facility and creating stable forms for export.

New Zealand's first dairy export occurred when a consignment of cheese was shipped from a Banks Peninsula farm to Sydney in 1846. It was favourably received, and the consignment created another historic first. The cheese was produced by two labourers working for a settler who lived in Christchurch, and their relationship was based on an old Scottish practice of profit-sharing between labourer and landowner, a practice that would evolve into the system that became more widely known as sharemilking.

What was immediately obvious to all was New Zealand's climatic advantage. Milder temperatures with regular rainfall allowed for longer pasture-growing seasons and less cost than the northern hemisphere, where cows had to be housed indoors in the harsh winter months.

Shorthorns were the predominant breed initially, mainly because of their multi-tasking characteristics. A Shorthorn could not only produce milk to feed families and for the manufacture of cheese and butter, but its powerful body could also haul wagons along tracks and lift stumps from new paddocks. It survived in tough conditions and its meat was palatable. Jerseys, Friesians and Ayrshires would arrive in the 1860s and 1870s.

As more and more land was settled and towns sprang up, so too did small dairies producing cheese or butter. According to one report there were eighteen on Banks Peninsula alone by 1857, but they mainly focused on local demand — export tonnages, usually to Australia, were low.

Establishing the industry was hard work. Over the next two decades, European New Zealand suffered growing pains as it encountered harsh winters and poor growing conditions, economic booms and busts and uncertain export receipts. Above all, it struggled with the distance from markets for its perishable commodities.

But grow it did, as a parliamentary form of government was established from 1854 and rail and road links steadily expanded throughout the country. A wide variety of business enterprises began to flourish, many with links to what became known as the Old Country.

More ships brought the rest of the world and all manner of goods within reach, along with more and more people, while the telegraph allowed messages to be distributed quickly — not just within New Zealand but to other countries as well. Councils, harbour boards and other public bodies were formed to represent local interests keen to better themselves, and businesses established special interest groups to improve their trading opportunities.

Unsettled markets, harsh conditions and a well-developed awareness that there was no easy road ahead led many dairy farmers to the belief that there was a compelling need for better organisation and structures if their land of promise was to reach its potential. Part of that belief was that the more control farmers could have in the farm-to-market process, the more likely they were to receive the best prices.

The normal practice was for a proprietary dairy company to buy a farmer's milk for a negotiated price and take the risk in the market. Such commercial entities had knowledge and expertise and the system could work well, but it meant farmers had to accept prices at the season's outset with little real awareness of whether they were receiving true market value.

There was another important element to dairy farmers' feelings. They were totally dependent on a local factory processing their milk every day. If their milk wasn't processed, it would spoil. If hard times struck, a proprietary company might no longer accept their milk. If they owned the dairy factory, on the other hand, they could control that aspect of their lives. Sheep farmers faced no such daily risk. Selling wool and killing for meat could always be held back for another day.

The co-operative principle, in which groups with common interests banded together for economic, social or cultural benefit, had existed throughout human history. It had grown in sophistication in England during the industrial revolution of the early 1800s. The over-riding theme was that participants were seeking maximum collective advantage — operating democratically, providing finance on a proportional basis when required and accepting obligations to supply labour, goods or produce.

One bleak night in 1871 on the Otago Peninsula, a large adjunct of land close to Dunedin, a group of farmers formed what is believed to be the first dairy co-operative in New Zealand, the Otago Peninsula Cheese Factory. The eight founding members were allotted shares based on the milk they would supply — each one pound share would represent ten quarts of milk. Just a month later a building for the company began to arise on the property of John Mathieson, who had brought tubs and equipment for cheese-making when he arrived in New Zealand in 1857.

Both Mathieson and his wife were experienced cheese-makers and Mrs Mathieson played no small role in early operations. Within her kitchen, whey drawn from the cheese vat was heated in large tubs, then carried back into the cheese factory and poured into the vat to bring everything within to the right temperature. Mrs Mathieson must have been of doughty disposition, and the hard work paid off. The company made almost four tons of Scottish-style Dunlop cheese and earned ₤246 in its first season. It paid Mrs Mathieson ₤5 for her trouble.

As was to be found time and again, establishing a dairy company was difficult; keeping it going even more so, particularly as prices varied widely for the mainstays of cheese and butter. The principle was to apply to the Otago Peninsula Cheese Factory as well. Mathieson left the enterprise in 1875 and production shifted to a property at Pukehiki, or Highcliffe, where cheese continued to be made until the mid-1880s. After that, butter made better economic sense and the cheese factory closed in the mid-1890s.

Still, there were incentives to grow. From the outset, New Zealand governments played active roles in encouraging the new industry. In 1881 the government offered a bonus of ₤500 to the first factory to export 25 tons of butter or 50 tons of cheese — a ton of butter requiring twice as much milk as a ton of cheese. Behind this encouragement was concern about the hygiene of home or farm manufacture, and a desire to get more production into larger factories where controls could be more readily exerted. A proprietary cheese company at Edendale, Southland, eventually took the first prize.

Technology would play a huge hand in the development of agriculture in New Zealand. The advent of refrigeration enabled the first shipment of frozen meat to be sent to London on the SS Dunedin in 1882, with casks of butter and cheese on board that were as well received as the meat. Suddenly a major market was within reach.

Just as clear, however, was that New Zealand exporters were dealing with experienced and sophisticated UK buyers. Well-organised proprietary dairy companies were usually run by professional managers with commercial links and knowledge. The co-operative dairy factories, on the other hand, had only local selling skills. Their knowledge and expertise on export markets were extremely limited.

Further, it was soon obvious that farmers and companies working in isolation would struggle with vital issues such as hygiene, packing and transport. Farmers could understand that it made sense for factories to compete with each other to get milk, but it made little sense for those factories to work alone at higher levels and not share knowledge and experience. One bad shipment of goods of poorer quality could tarnish them all. There was also the continuing risk of being picked off by wily and better-informed importers.

In 1885 factories in the Waikato formed an association to promote their common interests. These included plans to use their collective power to get better freight rates, and to improve export packaging and marketing. Other similar organisations followed.

Dairy factory managers held their first conference in Dunedin in 1892, and so began a more formal structure of communication that allowed discussions on vital subjects such as consistent quality standards. In 1894 North Island companies formed a Dairy Association which eventually became the National Dairy Association. All working together was seen as the logical way forward on the broader issues.

By that year, there were 124 dairy factories throughout the country, nearly half of them co-operatives. Dairy farmers in Australia, Europe and even the United States were also strong supporters of co-operatives. But while New Zealand farmers increasingly believed in their co-operatives, they also knew when they were stretching beyond their reach — and for the moment exporting was in that category.

There was an irony in co-operation. By the nature of where they had to farm, whether to simply survive or be successful, many dairy farmers lived in isolation. Their work was hard and facilities on the farm were few. The hours were long and their families had to live and breathe the hard life that was dairying — milking cows by hand twice a day, surrounded by mud and manure, working out of grim cowsheds or in open yards alongside sometimes unwilling animals and a long way from civilisation.

The outlook from the family home would be bush, paddocks with tree stumps waiting to be cleared and ramshackle buildings. The house was frequently too small for the family expected to live in it. Many people in the towns had little idea of these hardships, and often seemed to care even less.

Dairy farmers would rapidly adopt new technologies, such as the separators of cream and milk that became available from 1883, but they knew they had to rely on themselves, and their isolated outlooks only served to endorse that.

By the end of the 19th century New Zealand agriculture had already divided into two large sectors — dairy and meat. The owners of sheep runs, many times larger than the average dairy farmer's holding and profitably producing both meat and wool, had the appearance of landed gentry. With their harder circumstances — unsociable hours, unrelenting milking schedules, poor prices and marketing, and often reduced to bartering for goods just to survive — dairy farmers were in a different class.

Because cows produced a product that didn't keep well, and produced it relentlessly day after day, dairy farmers were driven from the outset to seek technical innovation, far more so than their sheep and beef farming cousins.

As Arthur Ward, a future leader in the dairy industry, would comment in his book, A Command of Co-operatives, self-reliance brought strength but it also brought penalties: "The dairy farmer was suspicious of outside help from authorities or commercial interests. He was suspicious, frequently unnecessarily and ungenerously so, of approaches from or commitments to those interests. He was slow to make business friends other than those with whom he had worked and of whose integrity he was sure.

He developed a suspicion of city and urban interests as not being allied to his own, and believed they were seeking more than a fair share of his hard-won livelihood. Consequently, he sought through his co-operatives and district associations to secure as much of the selling price of his produce as was possible. He needed this for his own meagre living and for his farm's future development.

Or as Gordon McLauchlan would note in The Farming of New Zealand, the dairy farmer never regarded co-operatives as a form of syndicalism, a branch of socialism. He'd have none of that. At the very time he was building the co-operatives he was campaigning with simple fervour for the freeholding of lease-in-perpetuity land. His dripping sweat had made it grass-green. It was his, his, not God's nor any other man's.

Yet such arguments were incomplete. The rising tide of co-operative ownership showed that dairy farmers were not content to simply subsist on their land and accept the best price offered for their milk. Co-operatives had been established in many areas because they were the only way of ensuring there was a facility for processing farmers' milk. Without a plant close by, they could not have taken up dairying. Proprietary companies, on the other hand, were usually not keen to invest in more remote areas.

Ownership also meant farmers in a co-operative venture had to look beyond their farms at what ought to be possible in the markets, and they wanted to play a part in that. They already owned their farms and their herds. In their eyes, owning their local factory as well was capitalism at its most advantageous.

From the 1890s, better infrastructure and more fortuitous circumstances lifted the fledgling industry considerably. Chew Chong, an entrepreneurial Chinese trader who lived in Taranaki, might have started out buying old iron and running a simple store. But when he built a dairy factory in Eltham, hired the best managers and then paid cash for milk supplied, the bartering system for paying farmers, never a popular arrangement, was finally broken.

A Cornishman, Henry Reynolds, a dairy farmer himself, showed another way forward. He opened the first butter factory in the Waikato, at Pukekura, and established what would become a world-renowned brand — Anchor — in 1886. Other factories followed. Then in 1896 Reynolds sold the entire business to the co-operatively owned New Zealand Dairy Association.

In districts away from more populous urban areas, loan finance for a factory was understandably harder to find than somewhere close to town. In those days of horse and cart, farmers in such districts had to have access to a reasonably close dairy factory. Financing such a proposition had little attraction to commercial businessmen and a co-operatively funded venture was often the most logical option. Even then, it was not easy to convince a bank to provide support.

Building a factory was costly enough, but there also had to be working capital to fund payments until the market returns came in. It helped when there were wealthy people in the district who would subscribe funds to the venture in the form of 'dry' shares, supplementing the 'wet' shares issued to suppliers, but there were no guarantees of dividends and many such arrangements became virtually interest-free loans.

From one end of the country to the other, scores of small dairy factories sprang up as refrigerated shipping opened up the British market. The numbers told a fascinating story. By 1901 more than 10,000 tons of butter and cheese a year were being exported, worth just over ₤1,000,000 and representing 8.4 percent of all New Zealand's exports. Ten years beyond that, in 1911, the proportion had reached 15 percent; 20,000 farmers supplied milk to dairy factories and the average herd had 28 cows, a figure worked out by dividing New Zealand's total production by the average butterfat per cow 'at the pail'.

That was a term early farmers knew all too well. Alongside a pail placed under an udder, and usually seated on low stools, farmers milked each cow individually, squeezing down on two diagonal teats to push out the milk while keeping a grip around the base of each so that milk did not flow back into the udder. Right hand, left hand, right hand - swap teats - right hand, left hand, right hand - the process continued until the udder was emptied and the pail could be poured into a vat or can. Hand milking cows was time-consuming and laborious.

But better technology was almost at hand. A successful milking machine was produced by Alexander Shiels, a Glaswegian, who developed a pulsating device which, when coupled with a double-chambered teat cup developed in 1894, meant the days of hand-milking were numbered. By the turn of the century milking machines had arrived in New Zealand.

A new Department of Agriculture had been set up in 1892 and its inspectors, many of them experts offering sound advice, regulated the manufacture of butter and cheese and ensured the milk used was pure.

The department had the power to inspect farms and factories, grade what they produced, and ensure all export produce and packaging were of a suitable quality. It initially urged caution about milking machines — with some justification — but New Zealanders were ready adapters of the mechanised system. By 1920 about half of the country's dairy cows were being milked by machines.

Most co-operatives were going well and not only dairy farmers looked favourably at the rising production. So too did banks, which in turn allowed more expansion. Overseas, importers were likewise impressed that this was no fly-by-night industry and wanted to do more business with it. While not without its difficulties, New Zealand's dairy industry was seen by all to be essentially sound. The way co-operatives and proprietary companies worked together also led to confidence.

In that respect, the role of the North and South Island Dairy Associations had been critical. They were, through the strength of their wide co-operative memberships, leading the industry, even negotiating shipping contracts and appointing agents in London. They achieved a goal of representing all co-operative dairy companies by 1911, and they had a good rapport with proprietary concerns as well. Sound communication had become entrenched throughout the industry, and participants benefited from knowledge-sharing and debate at national conferences and other meetings.

Dairying had become an industry of national importance as the number of farms being brought into production continued to grow. The government encouraged its development through initiatives such as helping pay for experts to visit overseas markets and report back to all. Canada and Europe had joined the list of export outlets.

Still, market fluctuations year by year were disheartening. They did nothing for stability of income for farmer, processor or exporter, or for the government's books for that matter. New Zealand had to compete fiercely in Britain against other suppliers — against the Europeans for butter and Canada and England for cheese. At times that meant large volumes reaching weakening markets, often in the hands of traders desperately keen to sell.

In 1914 the New Zealand dairy industry was in a state of despondency, after losses described as enormous. The outbreak of world war, however, dramatically changed that. New Zealand committed itself to doing all it could to support Great Britain in its hour of great need. Decisions influenced by a conflict that would take the lives of more than 16,000 young New Zealanders would be felt by the dairy industry for decades.

National Dairy Association chairman Arthur Morton would tell delegates at the association's conference in 1915: We have had prices that were unheard of or undreamt of for both our butter and cheese. Without doubt a large proportion of the increase — perhaps the whole of that increase — has been due to the fact that the Empire has been engaged in war. But Morton's optimism was soon replaced by a sense of unfairness across the entire industry.

Britain was facing a crisis and the outposts of the Empire accepted the need to supply food — particularly cheese, which was more keenly sought than butter. Government-to-government negotiations were seen as the appropriate mechanism for organising pricing and supply. But the British government did not treat all countries alike in prices paid and there were many anomalies.

To support its supply commitment, the New Zealand government requisitioned the industry's entire annual production for a set price — regardless of what companies might have negotiated with suppliers. Farmers railed against the constraints — and in the process discovered they had political clout. Their message was eventually heeded and pressure from the government on its British counterpart brought some positive price results.

****

At the end of the Great War, far larger economic forces were at work, forces so large no government could ignore them. Prices crashed in 1921, butter by 50 percent. Many companies had decided to make butter instead of cheese because it was fetching better prices, but the market simply couldn't absorb the extra volume.

Frozen meat suffered a similar downward slide and the government passed a Meat Producers Act to bring about better producer control, and through that to influence seesawing prices. Dairy farmers sought similar legislation, although not unanimously. It was not until 1923 — when dairy products represented some 22 percent of the country's total exports — that the Dairy Produce Export Control Act was passed after a vote of all dairy farmers had approved it.

A Dairy Control Board of twelve members was established, nine to be elected through dairy companies based on their tonnage and geographical position. Of the remaining members, two were appointed by the government and one by the proprietary companies. The act allowed the Board absolute control of all dairy produce if it wished, as well as control of services such as shipping. It was also empowered to set up a London agency to monitor New Zealand dairy 'disposal' and prices.

The thinking behind the legislation was reasonably straightforward. It was an attempt to give producers some combined strength when the market became difficult. The system was not designed to try to control the market — which would undoubtedly fail given milk's widespread availability — but to enable the Board to manage the flow of products to minimise the effects of the worst declines.

The Board's powerful negotiating position resulted in huge shipping cost reductions, but market prices were still not where farmers thought they should be. This aggravated the tension between proprietary companies — with their close links to importers — and co-operatives whose representatives, deep down, knew they were not able to market as effectively as they would like.

As the Dairy Control Board's accountant was to note, the responsibility of selecting a suitable marketing medium, or deciding whether to sell their produce free on board (whereby they paid for transport and loading costs for getting the goods to the port of shipment), was laid upon farmers. Mostly they were good farmers, but they could not judge markets or marketing organisations.

When up to 20 representatives of merchants solicited their business on a day set aside for the purpose, the best and most plausible speaker often carried the day, irrespective of the merits of the organisation he represented, said the accountant.

In 1925 the Dairy Control Board began to move to take full command. It wanted to grade butter and cheese across all factories, then pool and ship them to Britain, where it envisaged merchants in Tooley Street (a centre of commerce close to London's docks) would be apportioned quantities based on their average tonnages over the preceding three years. If they couldn't sell within a reasonable time, the excess or later shipments would be transferred to others. Thus, the theory went, weak sellers would be eliminated. The same would apply to Canada, the United States of America and Europe. The Board had reason to believe such moves would be well supported. By 1925 fully 90 percent of the dairy factories in New Zealand were farmer-owned co-operatives.

Privately owned merchants, however, watched the new Board with jaundiced eyes. They could see themselves losing margins, and they wondered whether this new organisation might not eventually try to get rid of them altogether.

They bristled further when the Board set arbitrary commissions for sales, along with minimum selling prices. Allegations that the Board was price-fixing were soon flying. The merchants argued for more money. The Board would not budge, but it was soon on the back foot.

Members were hauled before the government to explain themselves, a situation not helped when even their own representatives were publicly bickering as opposition to compulsory acquisition grew. Trading conditions were poor and stocks were large, and the situation was exacerbated by a general strike in the UK. A group of wholesale buyers in Britain led a boycott of New Zealand produce, a move even some New Zealand companies silently endorsed. The Board's attempt at control lasted about a year before being dropped.

It did not withdraw completely at this defeat, instituting an export licensing scheme through which it controlled all shipping and insurance. Factories had to provide precise details of production, shipments, sales and storage. Internally, however, board members tore themselves asunder as personal attacks led to resignations. The dairy industry was no place for the faint-hearted. Yet it could not afford to have common sense railroaded, and the larger issue of ensuring the best returns remained as pressing as ever.

There had been successful attempts to form large groups of companies acting in trading unison. William Goodfellow was a leader in such thinking. As a young man, Goodfellow had set out on a business career of his own based on his knowledge and understanding of machinery. He had a firm belief that better machinery and new technologies would lead to considerable change, where those with vision would prosper. He became involved with the dairy industry only when an equipment customer defaulted and he found himself with some unexpected dairy plant and machinery.

In 1909 Goodfellow had formed the Waikato Dairy Company and a year later turned it into a co-operative. In 1915 he had established a co-operative cheese company in the same region, all of which developed his appreciation of economies of scale. The other large co-operative in the area was the New Zealand Dairy Association, which owned the Anchor brand. The companies merged in 1919 to become the New Zealand Co-operative Dairy Company. Goodfellow took the helm as managing director, a position he would hold until 1932.

The expertise of Goodfellow's company in herd testing, grading and hygiene was respected throughout the country and his obvious business acumen convinced other companies to join him to market cheese and butter together in the UK, through the newly formed Amalgamated Dairies.

Goodfellow crusaded both personally and as a Dairy Control Board member for dairy companies to join forces to gain maximum prices, and argued for the elimination of middle-men. But even the best marketing and sales efforts could be undermined by just one company losing its nerve when markets looked unstable. If the price fell, as happened all too frequently, all companies suffered at the same time. During the 1920s and 1930s, the market repeatedly collapsed.

The control board tried to curb weak selling behaviour by introducing measures to help companies maintain market discipline, including negotiating cool storage contracts so there was less need for selling under pressure. But in the eyes of many farmers, the disparate mixture of proprietary companies, multiple groupings of co-operative companies and individual companies acting on their own was not best serving collective New Zealand interests.

Even the farmers' own co-operative companies were not sufficiently confident to take a stand together. After the Board's failure to gain the control it was legislated to exercise, Goodfellow gave up the idea of a wholly representative industry marketer. In 1929 he established Empire Dairies, combining Amalgamated Dairies and the Australian Producers' Wholesale Co-operative Federation, to sell dairy products from New Zealand, Australia and other countries of the Empire in Britain.

What was later called the Great Depression added to New Zealand's woes. Again the figures highlighted the story of those times. Between 1930 and 1934 butter and cheese production rose — but the value per ton for butter dropped from ₤126 in 1930 to a low of under ₤77 in 1934. Export receipts for cheese fell from ₤6.4 million to ₤4.4 million over the same period. With dairy at that time providing more than 40 percent of New Zealand's export earnings, the effect on the country's trade balance was devastating.

By 1935 all parties agreed — at meetings and conferences throughout the country, and after a Dairy Industry Commission had thoroughly studied the industry and its problems — that export markets were a mess as far as producers were concerned. Action was needed. Only the Dairy Board — the word 'Control' was dropped from its title that year — was capable of effecting the necessary change.

Farmers saw little choice. The industry had reached a critical point. They could either forbid the Board from entering marketing and leave it up to individual companies and merchants, or — as Board officers would tell the Dominion Dairy Conference that year — seek to bring about conditions which would enable the dairy industry as co-ordinated through its own organisation, to exercise effective and intelligent supervision over the produce to a point much nearer to the retail counter than it is today.

Enthusiasm for such a move was restrained. Delegates wanted no return to the price-fixing schemes of 1926 and nothing should be done, according to one delegate, that didn't meet the approval of the British people, not to mention their importers and buyers. But the conference approved what was in effect a group marketing scheme entirely controlled by the Board.

The plight of the industry was well recognised politically, so much so that the Labour Party in the 1935 general election stood on a plank of guaranteed prices for farmers for their butter and cheese. They duly won, handsomely, after a long and bitter time of austerity.

The clever Walter Nash, Minister of Finance of the time and later to become prime minister, had a strong socialist streak. He had helped formulate his party's guaranteed price scheme and with his government in power, he would proceed to stretch it further. If it was to guarantee the price for butterfat, it was only right that the government should also have responsibility for marketing dairy produce through a state trading department. Private enterprise, if not capitalism itself, had clearly failed. The industry's own marketing plans were sidelined.

Few farmers were prepared to complain at state control in the middle of a worldwide depression. The guaranteed price was based on an average worked out from returns over the previous decade. Prices had dropped drastically in the early 1930s and the new guaranteed price of 13.04 pence looked positively enriching, but Nash's plans meant the end of the Board exercising its own powers. Many of its officers transferred to the government's new Internal Marketing Division.

By 1937 the Minister of Finance was boasting that the government system of marketing had saved ₤200,000. Further, it had been judged as sound even by merchants and agents and had given farmers security by protecting them from market fluctuations. Farmers could sense a guaranteed profit opportunity and milk production soared.

Two years later the government was facing a loss of ₤1.5 million for the 1939 trading year, a loss that ballooned out by a further ₤1 million as prices continued to decline overseas. It found itself with fight on its hands as it tried to lower the guaranteed price by a formula farmers considered unfair.

That fight coincided with the outbreak of World War 2, where once again New Zealand devoted itself to the cause of the British Empire. The British government assumed responsibility for food supplies and the New Zealand government exercised control through its Internal Marketing Division. Everyone accepted that no undue pressure should be exerted on Britain to pay more than was reasonable. But when the New Zealand Court of Arbitration decided on a 5 percent wage increase for all workers, and the government refused to accept farmers' belief that the resulting cost increases should be covered by a lift in the guaranteed butterfat price, tensions rose considerably.

There were also tensions with the British government. Its negotiating stance was that it would take most, and preferably all, of New Zealand's butter and cheese, at prices based on pre-war averages. There was general recognition that Britain could not afford to pay much more, but negotiations were not easy. From the dairy farmers' viewpoint, pre-war prices were too low. They did not even cover production costs. With the government holding firm on the price, farmers were receiving a fixed and insufficient return in the face of constantly increasing costs.

Some relief came in 1942 with the enactment of Economic Stabilisation Emergency Regulations, which froze prices, wages and rents. Stabilisation accounts were established and any payments received for the sale of dairy produce above guaranteed prices were converted into cost allowances to cover increased farm or factory costs. The extra revenue ended most arguments, and feeding Britain and its allies once again absorbed the industry's attention.

Still, the war and guaranteed prices created distortions. Britain was receiving cheap butter and cheese at New Zealand's expense, and the guaranteed price scheme was ultimately based on market realisations. Walter Nash had considerably muddied the waters when he said the guaranteed price covered all farming costs, including a suitable reward for the farmer's own efforts.

With prices to Britain deliberately held down, even if for understandable reasons, discord was inevitable. The government had little option but to continue to pay guaranteed minimum prices plus other allowances. By the end of 1944 it had paid more than ₤25 million in subsidies. Eventually, the British government became more reasonable. As compensation for the increased costs New Zealand had absorbed, it agreed to pay the country ₤12 million in 1944 and ₤4 million a year for the next four years.

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Already, the dairy industry had shown it could be a powerful force for the country's economic well-being. In its good years, it had produced more than 40 percent of New Zealand's export earnings. The industry had disadvantages, however — particularly distance from markets. Other countries were similarly skilled at producing quality dairy products and had the wherewithal, history, knowledge and skills to improve their positions more easily than a tiny country in the South Pacific.

The industry also suffered from the inevitable and omnipresent vagaries of international trading — over-supply, poor producing seasons and economic recessions if not depressions. New Zealand's butter and cheese offered little or no distinction or added advantage to encourage a customer to pay a higher price.

The industry's initial successes arose from commendable initiatives, most notably the ability to refrigerate large quantities of goods and send them thousands of miles to overseas markets. Many more such developments would be needed. To continue to succeed, in fact, dairy farmers in New Zealand would have to produce their milk more cheaply than farmers elsewhere. And the companies they owned would have to make their butter and cheese and other products as efficiently as the very largest factories overseas.

New Zealanders had shown themselves to be intensely practical people. Hard work and the application of common sense had paid off in farming, and the people who ran dairy factories were capable and knowledgeable. Those attributes alone weren't going to be sufficient for the future, however. What would be needed was more and more investment in science and technology. New Zealand needed to strike out on its own programme of scientific endeavour, focused on its own agricultural needs and seek to lead, not follow. Scientific research was already well established at universities, yet most of the country's scientific endeavour to date had been in areas of more immediate potential and reward.

A breakthrough had come in 1925 when, after some years of agitation but little activity, the Department of Internal Affairs appointed a committee led by Ernest Marsden to investigate and report on the state of the country's scientific and industrial research. Britain had just established a Department of Scientific and Industrial Research, and Sir Frank Heath who headed the new department was invited to New Zealand for his views. Further strong support came from Sir Ernest Rutherford, New Zealand's most famous scientist.

Heath's recommendations carried weight. He agreed with Marsden that New Zealand also needed such a department. Within a year the Scientific and Industrial Research Act had been passed and what became known as the DSIR was established. Marsden, a physicist and former assistant director of education, became its head and chaired an advisory council which soon had networks throughout the country.

He set to work, with a particular emphasis on agriculture, calling together industry and business leaders as well as politicians and urging them to understand that science had a major role to play in the development of the country's primary industries. One logical outcome was the creation of a New Zealand Dairy Research Institute to focus on milk and dairy manufacturing.

There were a few hiccups initially as those who had been carrying out such research in the past welcomed the new institute less than warmly, but gradually a chief chemist, a chief bacteriologist and other scientists were appointed and facilities including an experimental dairy factory were established.

What had been put in place was by no means unique. Australia, Holland, Denmark and other countries had similar research organisations. But the Dairy Research Institute, with the support it had and the way it fitted into the industry's systems, processes and structures, had an edge from the outset. Through patience, funding, applied intellect and the hard work of its scientists, the institute would provide huge rewards.

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CHAPTER 2

When 'non' became 'oui'

and meant 'peut-être'

When World War 2 ended in 1945 the Dairy Board's attention turned back to the marketing control it had sought ten years earlier, and to the need to re-establish the link between guaranteed prices and market returns. There was comfort in the pursuit of those aims in that there was strong market demand as a war-impoverished Britain wanted to maintain its long-term purchasing contracts. For some years to come, New Zealand would limit the consumption of its own people, as it had done during the war, by rationing so that supplies to Britain could be maintained.

Nothing was simple, however. Dairy farmers, all 40,000 of them, supported continuation of the guaranteed price scheme, as did the government. But in farmers' eyes, the government was not allowing sufficiently for the industry's rising costs. Further, while Britain wanted nearly all of New Zealand's cheese and butter, it was paying other countries much higher prices for the same products.

Sooner or later, governments almost always come to dislike being involved in setting prices, particularly when the recipients of such