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Fonterra's outsourced milk processing stoush gets to highest court

Tuesday 14th February 2012

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Fonterra Cooperative Group, the world’s biggest dairy exporter, is seeking to block buyers of its regulated raw milk supply from outsourcing the first stage of processing, the Supreme Court heard today.

Allowing competitors who outsourced processing while claiming rights to regulated raw milk from Fonterra was contrary to the regulations, would limit milk available to companies that do process their own product, counsel for Fonterra, Alan Galbraith QC, told the court.

“Who gets raw milk shouldn’t simply be able to on-sell it,” said Galbraith, in the latest chapter of Fonterra’s long-running battle against regulations that require it to supply 600 million tonnes of raw milk annually to competing manufacturers at regulated prices.

Fonterra is seeking to overturn a Court of Appeal decision granting access to the regulated raw milk pool to cheese makers Grate Cheese Company and Kaimai Cheese who, at the time of their initial application, outsourced a large chunk of that processing to Open Country, the nation’s second biggest dairy processor.

Galbraith said if the Appeal Court decision was upheld, that could pave the way for “virtual processors” to flood the market, making claims on the regulated pool without owning facilities to process the raw product.

James MacGillivray, counsel for Kaimai and Grate, told the court the threat of “virtual processors” was “simply fictitious.” There was “no mischief” in allowing a company to buy an allocation of the regulated pool and paying a rival dairy processor for its spare capacity, he said.

MacGillivray extended that to include Fonterra’s own processing, which would enhance competition in the market. Parliament could have specifically excluded outsourcing arrangements if that was its intention, MacGillivray said.

The appeal won’t have any immediate bearing on Kaimai and Grate Cheese, with the former now owning its own processing facility, and the latter purchasing hard cheese which it then processes and repackages, he said. The hearing is set down for one day.


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