Top court rejects Fonterra’s appeal

Fonterra Cooperative Group breached the Dairy Industry Restructuring Act (Dira) by imposing less favourable terms on farmers who had previously supplied the failed New Zealand Dairies, the Supreme Court has confirmed.

In 2015, the High Court ruled that Fonterra had breached Dira after buying the independent processor’s plant out of receivership in 2012 for $48.5 million and taking on the farmers, who supplied milk from farms in North Otago and South Canterbury. Fonterra made a deal with the farmers, agreeing to buy their milk under a “growth contract”, rather than a fully share-backed supply, where farmers purchase one Fonterra share for every kilogram of milk solids they supply in a season and are paid the farmgate milk price plus a dividend on each share.

Under the growth contract, the farmers were entitled to 5c less per kilogram of milk solids than the contract milk price and bought 1000 Fonterra shares but could not become fully share-backed in their first year of supplying Fonterra.

Fonterra appealed the ruling to the Court of Appeal, which rejected it in 2016 and this year to the Supreme Court. It was granted leave to appeal on the question of whether the appeal court was correct to find that the farmers counted as “new entrants” and, if so, whether Fonterra breached section 106 of the act in offering the terms that it did. In a majority ruling, the court dismissed the appeal. — BusinessDesk