Supreme Court rejects Fonterra’s appeal over supply of raw milk to rivals

BUSINESSDESK: The Supreme Court has turned down Fonterra Cooperative Group’s appeal against a ruling it must supply raw milk to rivals even if they don’t process it themselves.

The top court’s bench was unanimous in upholding the lower court decisions, saying “to require a new entrant to possess or borrow the capital necessary to establish its own facility would establish a significant barrier to entry into the market,” according to the judgment delivered by Judge Andrew Tipping. The court awarded $15,000 in costs plus disbursements to respondents Grate Kiwi Cheese and Kaimai Cheese.

Fonterra argued its rivals shouldn’t be able to outsource processing while claiming rights to the regulated milk supply, saying it would limit milk available to companies that do process their own product.

“Although the meaning advanced by Fonterra is a possible one, there is nothing in the text of the definition or in the act or regulations to suggest that a processor must make use of its own facilities when undertaking the processing,” the judgment said.

That meant Grate Cheese and Kaimai qualified as independent processors and were entitled to access the regulated supply.

“All that is necessary to become an independent processor, as defined, is for the party concerned to be intending to process the regulated raw milk it obtains from Fonterra either personally or by means of contractual arrangements entered into for that purpose,” the judgment said.

The dispute stemmed from Grate Cheese and Kaimai outsourcing a large chunk of their processing to Open Country Dairy, the nation’s second-biggest dairy processor, which had spare capacity to pick up the work.

“To prevent the use of that spare capacity by adopting an unnaturally restrictive interpretation would not be conducive to efficiency in the relevant dairy market,” the judgment said.

The judges weren’t swayed by Fonterra’s argument that allowing its rivals to outsource processing would lead to an explosion of ‘virtual processors’ tapping the raw milk supply and immediately on-selling it.

“Even if toll processing might arguably in the short run reduce demand for milk at the farm gate, we are not satisfied that this is a factor of sufficient weight, when viewed in a wider context, to overcome both the ordinary and natural meaning of the definition and the general purpose of the act and the regulations,” the judgment said.

The decision isn’t likely to have an immediate impact on Grate Cheese and Kaimai, with the latter now owning its own processing facility and the former purchasing hard cheese which it then processes and repackages.

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What a shambles parliament has created.
Here we have a company getting told by a court it has to sell its property to its competitors at a certain price that does not take into account scarcity or abundance.OR the fact it actually belongs to whom?.
THAT IS SOCIALISM

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What utter rubbish. Supplying milk to competitors was part of the deal the co-ops agreed to when they asked Parliament to create the Fonterra monopoly. If they didn't want regulation, they should have continued competing. They may not like it, but they made their bed and can lie in it.

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And isn't that what I meant when I said;
"What a shambles parliament has created."
Read the post. Doh
If this Heath Robinson jack up that the NZ PARLIAMENT created, ALL ON THEIR OWN, (they are the only body that can make law. Doh) isn't "socialism" then I'd like to know what it is!!

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Watch as these guys set up again.

Funny how the cross ownership rules work. Does not the Dairy Investment Fund own shares in all parties?

So one entity gets milk to flow through its sister entity just to increase volume reduce variable costs and then flick the end products offshore.

Fonterror is spot on, on this point!

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Pardon? You say,
"Fonterror (sic) is spot on, on this point!"

How do you work that out?

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Remember frontera is a monopoly.

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Its a monopoly owned by NZ farmers. It maybe inefficient, pay a significantly low price for milk than aussie. But the returns are for the country.

Did not hear about how Talleys, John Key's mates and japanese/russians care about the welfare of NZers. Especially when they are leveraged like PE firms and pay little tax in NZ.

DIRA works however the entity should process its own milk not sub contract it to others. Esp. given the close proximity of shareholders.

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I do hope you have your tongue firmly in your cheek? :)

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It is "Justice" Tipping and NOT "Judge" Tipping. Have some respect for our judiciary!!

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It seems that the efforts to undermine Fonterra's success continues at all levels.
Don't bite the hand that feeds you!

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You people have short memories of why Fonterra was allowed to be created.

I also remember reading an article in the NBR last year saying that Fonterra executives had hundreds or thousands of NBR subscriptions, so it wouldn't surprise me if the majority of the people commenting on here work for the company. Get over it, you have lost, in all the courts, why cause you were wrong. There is no where else to appeal, move on.

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You are joking. FONTERRA is an artificial entity created by parliament to enable fonterra to screw the consumer. As a consequence steal consumer purchasing power (employment) away from other producers and manufacturers.
Or are you suggesting that without the creation of FONTERRA peeps wouldn't buy dairy products?.

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How about some of you look at history, Fonterra was formed out of New Zealand Dairy Group, Kiwi co-op and the Dairy Board. And before Fonterra there was compertition at the farm gate for milk, which is healthly as long as it is on a level playing field, but all the products were exported using the single seller desk of the Dairy Board.
Since Fonterra was formed under DIRA, the rules have been changed, the new processors aren't doing anything different then Fonterra is, and none of them supply milk for the NZ customer, also they have all needed to be helped out as they lose money, eg Open Country Dairy losing over $29 million last year with record high prices. As for these companies getting milk with no where to process it, this is very wrong as stated the same people have investments in different companies and are able to take more then they ever should.

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Are you suggesting Fonterra "hand in" its monopoly in exchange for selling milk to whom it wishes, when it wishes, at a price it wishes?
I'd go along with that, its what is called normal business practice!
Wouldn't that be radical for our politburo in Wellington.

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"Here we have a (statutory monopoly) company getting told by a court it has to sell its property to its competitors"

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The purpose of DIRA was to encourage competition in our local market and thereby keep prices honest to our local consumers,, but we all know the raw milk supplied to competitors is processed and then sold offshore.. So that is a fail and an absurdity to have to sell your product at cost +10cents and then have to compete on the export market.. Absolute mind blowing stupidity.. Not only that these subsidised companies have the audacity to decide when they would like supply or not,, Fonterra is stuck with having to hold the excess capacity in the peak,, and fork out when the season is low.. Its no surprise that these companies lose money..
Gee people have such short memories,, the whole reason farmers agreed to form fonterra was because they were on the back of their posteriors,, returns were dismal,, so we agreed to form a single co-operative.. That's how dairy farming got out of the hole we were in,, but the success we have worked for is now being eroded.. Its gut wrenching to see this undermining taking place.. Some things never change,, somebody is always there to rip off the farmers,, all the way from thieving criminals right the way up to the toffee nosed bureaucrats,, yes and some of them have interests in these companies,, so who is looking after who I ask you??
Part of the deal when setting up Fonterra was that they were to supply 5% raw milk to new entrants,, but only for a certain length of time,, but Open Country and Tatua have been fleecing the system for years now and should have their supply weaned off over the next 3 years,, hell we all know they shoudn’t be getting any raw milk now..
How do you NZers feel about losing revenue offshore because that is where the proceeds from these rival companies is going.. Fonterra is a 100% kiwi owned business.. It is the backbone of the NZ economy and it always will be.. We have the best farmers in the world,, and we want to keep it that way,, but if nonsensical regulation is going to rule how we sell our own produce,, then the future of farming will decline..

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