Dairy Industry Restructuring Act: Commission releases Draft Determination report on Kaimai and Grate Kiwi disputes with Fonterra
16 October 2008
The Commerce Commission has released its Draft Determination regarding disputes between Fonterra Co-operative Group Limited (Fonterra) and both Kaimai Cheese Company Limited (Kaimai) and Grate Kiwi Cheese Company Limited (Grate Kiwi).
The Commission announced its preliminary views on 26 September 2008. The Draft Determination, which includes the Commission's reasoning for its preliminary views, can be viewed on the Commission's website.
Both Kaimai and Grate Kiwi are in dispute with Fonterra about the application of regulation 4(1) of the Dairy Industry Restructuring (Raw Milk) Regulations 2001 (Regulations). This affects Kaimai and Grate Kiwi's eligibility to access raw milk under the default milk regime. The disputes concern the definition of 'independent processor' as outlined in the Act and the ability of an independent processor to contract a third party to undertake part of the processing of the default milk.
The Commission has reached a preliminary view that the plain meaning and context of 'independent processor' in the legislation support the position that Kaimai and Grate Kiwi are independent processors under the Regulations. Further, the Commission considers that Fonterra is obliged to supply Kaimai and Grate Kiwi with raw milk to their nominated delivery points.
The Commission invites written submissions on the Draft Determination. Submissions must be received by 5pm, 31 October 2008. A final determination will be issued following this process. Submissions can be addressed to:The Registrar Competition Branch Commerce Commission P O Box 2351 Wellington
The Commission has both an enforcement and adjudication role under Subpart 5 of Part 2 of the Dairy Industry Restructuring Act 2001 (DIR Act).
The purpose of Subpart 5 of Part 2 is to promote the efficient operation of dairy markets in New Zealand. The DIR Act provides for the regulatory and structural reform of the dairy industry. In relation to the dairy industry, the Commission:
- provides determinations on disputes with Fonterra about the application of Subpart 5 of Part 2 of the DIR Act or any regulations made under section 115 of the DIR Act; and
- undertakes investigations in relation to Subpart 5 of Part 2 of the DIR Act.
The dairy industry is also subject to the provisions of the Commerce Act and the Fair Trading Act.
The DIR Act promotes a number of principles, as set out in section 71. One of the principles is that "independent processors must be able to obtain raw milk, and other dairy goods and services, necessary for them to compete in dairy markets." The Raw Milk Regulations, made under section 115 of the DIR Act, oblige Fonterra to supply raw milk to independent processors.
The definition of 'independent processor' is set out in section 5(1) of the DIR Act and is adopted in the Raw Milk Regulations.
Grate Kiwi began grating and blending cheese for the New Zealand market in 1991. It currently specialises in providing grated cheese predominantly for the food service market, and states that it intends over time to expand into processing raw milk into cheese.
Waharoa-based Kaimai commenced operations on 7 January 2008 and intends to supply a range of soft, hard and semi-hard cheeses.
A copy of both Kaimai's and Grate Kiwi's applications to the Commission, and Fonterra's response to the applications, are also available on the Commission's website www.comcom.govt.nz under Kaimai Cheese Co Determination and Grate Kiwi Cheese Co Determination.
The underlying issues in dispute in the applications from both Kaimai and Grate Kiwi are related and the Commission considered it appropriate to consider the applications together.