By PHILIPPA STEVENSON agricultural editor

A2 Corporation will pay $8 million to the Child Health Research Foundation for a half share with the Dairy Board on patent rights to research linking milk with the onset of diabetes.

The payment looks to have settled a row between biotech researcher A2 and the board over the patent on the link between the A1 milk protein, produced by up to 80 per cent of the national herd, and the onset of insulin-dependent diabetes.

A2 Corporation wanted to commercialise production of A2 milk, which is free of the suspect protein, but the board lodged an objection with the Patents Office, believing it held the patent rights.

After A2's annual meeting yesterday, director Howard Paterson said paying the foundation meant the company now half-owned the rights to the diabetes/A1 research, as well as all of the patents linking A1 and coronary heart disease.

But the board indicated last night that it was still contesting ownership of those patents.

Foundation chief executive Lee Schoushkoff said agreement was completed just yesterday and the foundation would consider how to spend the money in the New Year.

"It is good news for children, I will say that."

A2 Corporation said that under a contract with AgResearch, it had completed development of a DNA test to identify and select pure A2 cows, and bulk-testing of herds was beginning here and in Australia.

Chief executive Corran McLachlan said a research contract had been signed with the Otago University Medical School, and negotiations were underway with Australian researchers.

A $12 million share issue had been substantially oversubscribed, with shares taken up by New Zealand, American and European investors.

Chairman Jim Guthrie said the company would pursue international commercialisation of the patent rights next year.

"We expect pure A2 milk (free of beta casein A1) will be available in New Zealand and Australia by the second quarter of 2001."

The company intended setting up subsidiaries in the United States, Australia, the Channel Islands and Switzerland.

Shares in the company are trading on the New Zealand unlisted securities board at $3.