Westland farmers are in danger of voting for the sale of their company this week based on an offer that appears to be ‘too good to be true’.

The offer from China's Yili group is clearly not based on commercial reality, given the over-valued share price being offered, the guarantee of a milk price to match that paid by Fonterra, and the 1.5 million dollars in bonuses promised to top company executives to ensure the sale proceeds.

It's obviously based on strategic considerations.

What Yili is doing is surrounding Fonterra in a pincer movement by buying up competitors, and due to its size and vertically integrated ownership of the supply chain, being able to add more value to milk production than Fonterra.

The outcome, in a few short years, will be a collapse in Fonterra, allowing the Chinese company to buy their assets for next to nothing.

While NZ first and Labour MPs are bemoaning the sale prospect, and questioning the big bonus payouts to the company's executives, they're not doing anything to avert either the short term or long-term consequences.

What the government should do is put in place an arrangement similar to the 1% Reserve Bank overdraft that the Dairy Board had access to from 1936 to the mid 80's, and make it available to Westland Milk.

That would enable them to swap the expensive Commercial Bank created debt with much cheaper Reserve Bank created debt and allow the company to use its income for the benefit of West Coast farmers rather than Australian owned banks.

Such an arrangement would not result in an increase in the country's money supply, nor would it generate any inflation.

That facility should be based on 100% New Zealand ownership of the company's shares which may require some overseas shareholders to relinquish their stake.

The overdraft facility should be extended to Fonterra on a similar basis.

Such a scheme would be a win-win for all the New Zealand parties involved, and the country, and would ensure that New Zealand's dairy processing was retained in New Zealand hands.

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