$30m settles dairy row with UK

A seven-year legal row which threatened to cost New Zealand's dairy industry hundreds of millions of dollars has been settled for $30 million.

Fonterra says it will pay Britain £11 million ($30 million) in back duties on butter and cheese shipments at the centre of the argument, which began in 1996.

At one stage, the heated dispute saw six executives from Dairy Board subsidiaries facing criminal charges.

British Customs and Excise had been seeking £323 million - $870 million at current exchange rates - in allegedly underpaid import duties, first from subsidiaries of the Dairy Board and then from its successor, Fonterra.

At the time the argument arose, the Dairy Board was the export marketing arm of New Zealand's dairy co-operatives.

"The settlement in the UK brings welcome closure to this whole affair," Alexander Toldte, Fonterra's chief development officer, said yesterday.

After reviews by British and EU authorities and many court hearings, it had been agreed that the duties were due, and they would be paid from funds already held by British Customs, he said.

The highly technical row over customs involved the interpretation of EU quota requirements relating to things such as the fat content of butter, spreadable butter, the weight of butter and cheese and import procedures.

One of the key issues was New Zealand's development of spreadable butter, produced by filtering out "hard" fats.

The innovation proved popular with British consumers, and the Dairy Board was making big profits when low-tariff access was taken away by British Customs in 1996.

Customs officials argued that the process used to make the butter spreadable meant it was not really "butter" at all and should not be included in the 76,000 tonnes of butter New Zealand was allowed to export to Europe under a preferential tariff.

At the time New Zealand was earning about $50 million, retail, on 5000 tonnes of spreadable butter shipped each year from Bay Milk Products' factory at Edgecumbe.

The European crackdown hit just as the industry was commissioning a Northland Dairy plant to make 10,000 tonnes a year, worth $100 million annually at similar price premiums.

The Dairy Board moved production to Belgium, using European milk, but the subsequent political and legal argument cost New Zealand its competitive lead.

In 1999, the European Commission changed its mind and allowed spreadable butter to be imported under the same preferential tariff treatment given to traditional butter.

But a 1996 audit by the European Union Court of Auditors criticised import procedures and decided that higher tariffs should have been charged on butter for the previous 20 years, sparking the long series of legal disputes.

Along the way, six executives from Milk Products Holdings (UK), the Dairy Board's British arm, and Anchor foods, the retail company, were charged with fraud over alleged quota violations, although the charges were later dropped.

- NZPA, Herald reporter