Commerce Commission releases consultation document on Kaimai and Grate Kiwi disputes with Fonterra
19 March 2009
The Commerce Commission has released a consultation document regarding disputes between Fonterra Co-operative Group Limited and both Kaimai Cheese Company Limited and The Grate Kiwi Cheese Company Limited.
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. Regulation 4(1) affects Kaimai and Grate Kiwi's eligibility to access raw milk. The disputes concern the definition of 'independent processor' as outlined in the Dairy Industry Restructuring Act 2001 and whether an independent processor can contract a third party to process part of the milk purchased. The Commission released its draft determination of the disputes on 16 October 2008.
The Commission has considered the submissions received on the draft determination. It has now identified a number of issues on which it requires further input from the dairy industry to ensure that the interpretation adopted in the Commission's final determination gives full effect to the language and objectives of the legislation.
The consultation document sets out the Commission's further preliminary view about the framework for resolving the dispute, followed by four options as to how the legislation could be interpreted, what scenarios each option would allow and the implications of each interpretation.
The Commission, in its draft determination, 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. Further, it was the Commission's preliminary view that Kaimai and Grate Kiwi can request that Fonterra deliver their raw milk to their nominated delivery addresses.
The Commission's consultation paper and the draft determination, together with the submissions received in relation to the draft determination, can be viewed on the Commission's website www.comcom.govt.nz under Dairy Industry/Dairy Register.
The Commission invites interested parties to make written submissions responding to the questions in the consultation document. Submissions must be received by 5pm, 17 April 2009. A final determination will be issued following this process. Submissions can be addressed to:
P O Box 2351
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 Dairy Industry Restructuring (Raw Milk) Regulations 2001 (Raw Milk Regulations), made under section 115 of the DIR Act, require 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 supplies a range of soft, hard and semi-hard cheeses.
As the underlying issues in dispute in the applications from both Kaimai and Grate Kiwi are related, the Commission considered it appropriate to consider the applications together.