KEY POINTS:
The Commerce Commission has agreed to step in and settle a dispute over milk supply between Fonterra and Kaimai Cheese Company.
Waikato boutique producer Kaimai Cheese began on January 7 and wanted to buy 10 million litres of raw milk from Fonterra from October 1.
The dispute related to rules requiring Fonterra to supply raw milk to independent processors, with a maximum supply to any one processor of 50 million litres a season.
Under the Dairy Industry Restructuring Regulations 2001, Fonterra had to supply 600 million litres of raw milk to independent processors during the 2008/09 season.
Fonterra could agree on the cost with processors but the regulations provided a default price.
Kaimai Cheese wanted Fonterra to deliver to nearby Open Country Cheese, which it had contracted to pasteurise the milk. However, Fonterra wanted to count any delivery made to Open Country Cheese against that company's regulated allocation.
Kaimai Cheese chairman Wyatt Creech said the Waharoa cheese maker would be the owner of the milk.
"We argue that we are a processor of milk. Just because we contract out one part of it, ie, pasteurisation, doesn't make us a non-processor."
Creech, who is also a director of Open Country Cheese and a former Deputy Prime Minister, said Kaimai could set up its own pasteurisation equipment but it was more sensible to do the work at Open Country Cheese, which was about 400m away.
Kaimai Cheese said that although it had some common shareholders with Open Country Cheese the two operators were separate companies.
Kaimai Cheese said in its application to the commission that if Fonterra's policy was allowed, it would sanction a blatant disregard of the law, be a major impediment to the efficient operation of dairy markets and create a precedent prejudicial to the statutory requirement to promote the right of independent processors to buy default milk.
In its reply to the commission, Fonterra said it was not required to supply Kaimai Cheese because that company did not process raw milk, nor was it required to deliver milk to Open Country Cheese on Kaimai's request and any delivery should count against Open Country Cheese's volume.
Fonterra argued that under Kaimai Cheese's interpretation, anyone who carried out some processing of any kind of milk or dairy product could require the supply of 50 million litres of raw milk to Open Country Cheese at the regulated price each season.
The commission is still investigating a complaint Fonterra used predatory pricing tactics lodged by Dairy Trust and Open Country Cheese.
MILK FIGHT
* Boutique producer Kaimai Cheese Company wants to buy 10 million litres of raw milk from Fonterra to be delivered to Open Country Cheese for pasteurisation.
* Fonterra must supply 600 million litres of raw milk to independent processors during the 2008/09 season at a regulated price.
* Fonterra says any delivery to Open Country Cheese must count against that company's allocation.
* The Commerce Commission will settle the dispute. Fonterra and boutique producer Kaimai Cheese Company are at odds over the 10 million litres of raw milk from Fonterra from October 1.
