For years it was a fruitful relationship, but in court papers seen by news.com.au, lodged in the Victorian Supreme Court last month, Fonterra alleged Bega is sabotaging its own brand so it can shift focus to a raft of cheese and dairy products it acquired in a 2017 deal with Mondelez.
Under that A$460 million ($505m) deal, Bega bought the rights to products including Kraft Singles sliced cheese, Kraft peanut butter, salad dressing and Vegemite. Since the acquisition, Bega has made a move to change the Kraft branding on many of those products to Bega branding.
For example, Kraft peanut butter is now called Bega The Good Nut peanut butter while Kraft Singles became Dairylea Slices.
Fonterra claimed Bega's move to rebrand those products constituted a breach of agreement. The Kiwi company also said use of the Bega logo and trademark on its new products was a violation of the terms.
Last year, Bega said it "expressly rejected" Fonterra's suggestion that it couldn't use its own trademark brand without Fonterra's consent.
News.com.au understands Bega's plan is to continue its rebrand of former Kraft products to Bega products, including from Kraft Mac & Cheese to Bega Mac & Cheese. According to court papers, some Woolworths supermarkets have already been briefed on what to expect.
Last year, Bega announced a A$160m capital raising through a share offering to institutional investors. The company said the cash injection was earmarked for growth plans in its dairy and food business.
Fonterra claimed Bega's strategy behind its new slate of products created direct competition for the original Bega Cheese-branded products marketed and distributed by Fonterra. Fonterra said this was also a breach of contract.
A Fonterra spokesman told news.com.au: "Fonterra has a longstanding agreement with Bega Cheese Limited that gives us the exclusive licence of the Bega brand within Australia and we have taken court action to resolve a dispute with Bega Cheese Limited about that agreement.
"Fonterra, as Bonlac Foods, in 1983 entered into an agreement with Bega Cheese Limited for the licence and marketing of the Bega brand. The current 2001 agreement is ongoing. The terms of that agreement grant Fonterra an exclusive licence for the Bega brand within Australia.
"Fonterra considers Bega Cheese Limited's recent move to rebrand its new grocery portfolio under the Bega brand is in breach of the terms of our agreement with them. Bega Cheese Limited disputes this. Accordingly, we have commenced proceedings against Bega Cheese Limited in the Supreme Court of Victoria to resolve the matter.
"Fonterra continues to exclusively sell and market Bega cheese products in Australia. Since 1983, we've turned Bega into a $230 million brand and one of the leading cheese brands in the dairy case. We've done this through investing heavily in the brand, in new product innovation and in marketing."
Fonterra claimed Bega's actions led to "an erosion of the commercial value of the rights granted under the Agreements and resultant lost sales and business."
Bega said it has done nothing wrong.
"Bega Cheese is the owner of the Bega Brand in Australia and around the world," a spokesman told news.com.au.
"Bega Cheese has a longstanding licence and product supply agreement on cheddar and processed cheese with Fonterra in Australia. Bega's ownership of the Bega Brand is not questioned.
"Bega Cheese has had a successful relationship with Fonterra over many years, we are disappointed with Fonterra's court action, the company is very confident of our legal position.
"Bega Cheese's current business relationship with Fonterra continues in the same fashion as it has done for many years."
Fonterra is seeking an injunction from the Victorian Supreme Court to restrain Bega from using its trademark on any unauthorised products.
The case is likely to be heard in the middle of this year.
