The Commerce Commission has published its final determination in a dispute over the components of the Wholesale Milk Price payable by independent processors when purchasing raw milk from Fonterra. The Commission has concluded that Fonterra has not breached the Dairy Industry Restructuring (Raw Milk) Regulations 2001 by including the profits realised from the sale of shares in retention when calculating the wholesale milk price.

In October 2005, Waharoa-based Open Country Cheese Company Ltd applied to the Commission to determine whether capital profits from Fonterra's sale of its shares in Wrightson Limited (Wrightson) and National Foods Limited (National Foods) should be included in the calculation of the wholesale milk price as defined in the Dairy Industry Restructuring (Raw Milk) Regulations 2001 (the Regulations).

Under the Regulations, Fonterra is currently required to supply Open Country with raw milk at the default milk price. Regulation 8(5) provides that the default milk price is the wholesale milk price for the season plus the 'reasonable cost of transporting the raw milk to the independent processor'. Fonterra's retention is one component of the wholesale milk price formula.

It is the Commission's view that profits realised from the sale of the investments in Wrightson and National Foods, if retained by Fonterra, fall within the meaning of 'retention', as defined in the Regulations. These profits do not constitute retention for abnormal or extraordinary asset revaluations or write-offs and the Regulations do not distinguish between 'capital' and 'operating profits'. It is, therefore, the Commission's final view, in accordance with the statutory language, that profits from the divestiture of shareholding interests are entitled to be included in Fonterra's retention.

The Commission's final determination is available on the Dairy Register.

Background

Section 126 of the Dairy Industry Restructuring Act 2001 requires specific matters to be in the Commission's Determination.

(1) A determination by the Commission must -

(a) state the Commission's decision on the matters in dispute; and

(b) state clearly whether a breach of {Subpart 5 of Part 2} or any regulations has occurred; and

(c) include the reasons for the determination; and

(d) include the terms and conditions on which the determination is made; and

(e) specify the actions that a party to the determination must do or refrain from doing, which may include (without limitation) payment of compensation by one party to the other.

(2) The Commission may specify an expiry date for the determination.