The Dairy Board and nine co-operatively owned dairy companies applied to the New Zealand commerce commission to merge, arguing that any lost competition on the home front would be more than made up for by an estimated NZ$200 million a year in public benefits to New Zealand from more efficient export activity.

``The merger would create New Zealand's largest commercial entity,'' the board said in a statement.

Its target is export efficiency gains, which it believes can help industry turnover leap to NZ$40 billion a year in 10 years.

Dairy products are New Zealand's single largest export industry, with sales worth just under NZ$4 billion a year representing 18 per cent of total exports.

The country's annual milk production totals 10.7 billion litres and the board sells1.4 million tonnes of products a year.

It claims one- third of the world dairy trade, although this excludes the vertically integrated dairy divisions of large food companies such as Kraft, part of Philip Morris, and Nestle AG -- the board's major competitors.

New Zealand international brands include Anchor -- which the board says is the world's largest butter brand -- Fernleaf and Chesdale.

The merger application covered the board, the two main processing companies -- New Zealand Co-operative Dairy Company and Kiwi Co-operative Dairy Company -- and seven smaller dairy companies.

As a sweetener for the deal, the industry has offered to separate part of the domestic industry to maintain competition locally.

``The divested company would have the processing capacity, brands and supply of raw milk and products to ensure vigorous competition on the domestic market,'' the board said.

The commission said it expected to make a decision on the application by September 13.

The merger, if approved, wouldmark the conclusion of an accelerating series of dairy company amalgamations, which has seen the industry shrink from around 50 companies 20 years ago to just five mainstream companies dominated by NZ Dairy Group (58 per cent of production) and Kiwi (27 per cent).

The board is owned by the processing companies, themselves owned by New Zealand's 14,500 dairy farmers.

Also pushing for the reforms is the New Zealand government,which sees the board's current export monopoly -- that would be superseded by the proposal -- as an impediment to trade negotiations with the United States.