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Dairy Industry Restructuring Act: Draft Determin'n

Dairy Industry Restructuring Act: Commission reaches Draft Determination on Kaimai and Grate Kiwi Cheese's dispute with Fonterra

The Commerce Commission has reached a preliminary view in a dispute between Fonterra Co-operative Group Limited (Fonterra) and both Kaimai Cheese Company Limited (Kaimai) and Grate Kiwi Cheese Company Limited (Grate Kiwi Cheese).

The Commission's preliminary view is that Kaimai and Grate Kiwi Cheese are 'independent processors' under the Dairy Industry Restructuring (Raw Milk) Regulations 2001. Further, subject to the terms and conditions of regulated milk supply outlined in the Regulations, Fonterra will be obliged to supply Kaimai and Grate Kiwi Cheese with raw milk to their nominated delivery points.

On 26 February 2008 and 4 March 2008 respectively, Kaimai and Grate Kiwi Cheese applied to Fonterra for the supply of raw milk under the Dairy Industry Restructuring (Raw Milk) Regulations 2001 for the 2008/2009 season. Fonterra refused to supply them on the grounds that they were not processors of raw milk, and were not taking delivery of the raw milk at their own factories. Fonterra argued that these facts made Kaimai and Grate Kiwi ineligible to obtain raw milk at the default milk price as they would not be considered 'independent processors' according to the Raw Milk Regulations.

The Commission's written reasons for its draft determination will be available as soon as practicable on the Commission's website www.comcom.govt.nz under Public Registers /Dairy. The Commission will not be making any comment on its preliminary view until the written reasons are available.

The Commission will be seeking submissions from interested parties on its Draft Determination. Persons wishing to make a submission may write to:

Kaimai/Grate Kiwi Determination
Commerce Commission
P O Box 2351
Wellington
Or via email at dairy@comcom.govt.nz

A due date for receipt of submissions will be published upon release of the Commission's written reasons.

Background
The Commission has both an enforcement and adjudication role under Subpart 5 of Part 2 of the Dairy Industry Restructuring Act 2001 (DIR Act).
The purpose of Subpart 5 of Part 2 is to promote the efficient operation of dairy markets in New Zealand. The DIR Act provides for the regulatory and structural reform of the dairy industry. In relation to the dairy industry, the Commission:
• provides determinations on disputes with Fonterra about the application of Subpart 5 of Part 2 of the DIR Act or any regulations made under section 115 of the DIR Act; and
• undertakes investigations in relation to Subpart 5 of Part 2 of the DIR Act.

The dairy industry is also subject to the provisions of the Commerce Act and the Fair Trading Act.

The DIR Act promotes a number of principles, as set out in section 71. One of the principles is that "independent processors must be able to obtain raw milk, and other dairy goods and services, necessary for them to compete in dairy markets." The Raw Milk Regulations, made under section 115 of the DIR Act, oblige Fonterra to supply raw milk to independent processors.

The definition of 'independent processor' is set out in section 5(1) of the DIR Act and is adopted in the Raw Milk Regulations.

Grate Kiwi began grating and blending cheese for the New Zealand market in 1991. It currently specialises in providing grated cheese predominantly for the food service market, and states that it intends over time to expand into processing raw milk into cheese.

Waharoa-based Kaimai Cheese Company commenced operations on 7 January 2008 and intends to supply a range of soft, hard and semi-hard cheeses.

A copy of both Kaimai's and Grate Kiwi's applications to the Commission, and Fonterra's response to the application, are also available on the Commission's website under Industry Regulation/Dairy Industry Restructure Act/Applications for Determination

The underlying issues in dispute in the applications from both Kaimai and Grate Kiwi are related and the Commission decided it is appropriate to consider the applications together.


ENDS

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