Fonterra may appeal against milk supply ruling

Fonterra may appeal against a regulatory decision that forces it to supply millions of litres of milk to smaller rivals.

The Commerce Commission last week ruled that Kaimai Cheese Company and The Grate Kiwi Cheese Company were independent processors and were entitled to be supplied milk by Fonterra under the Dairy Industry Restructuring (Raw Milk) Regulations 2001.

Fonterra supplied 440 million litres of raw milk under the regulations during 2008-09, with a maximum of 50 million litres to any one processor or in the case of Goodman Fielder, 250 million litres.

The cost of the regulated milk could be agreed with processors but the regulations provided a default price.

Fonterra general counsel David Matthews said the company did not agree with the Commerce Commission decision.

Matthews said Fonterra believes the complaint has resulted from the availability of subsidised milk which has encouraged Kaimai, Grate Kiwi and Open country to devise a plan to obtain more subsidised milk than they normally would get under the regulations.

The Commerce Commission's decision would increase the ability of independent processors to get subsidised milk, and the milk farmers would not be able to afford that, Matthews said.

Kaimai had applied for about 10 million litres of regulated milk for the 2008-09 season and asked for it to be delivered to Open Country who had agreed to do some of the processing steps. Grate Kiwi applied for 50 million litres of milk and proposed having Open Country manufacture its cheese.

The Commerce Commission ordered Fonterra to pay compensation to Kaimai and Grate Kiwi for losses from not receiving milk under the regulations from October 1 last year.