Fonterra's transport charge not reasonable

Media Release

Issued 23 December 2005/083

Fonterra's transport charge not reasonable: Commission

The Commerce Commission has published its final determination in a dispute over transport costs paid by the Waharoa-based Open Country Cheese Company Limited when it purchases raw milk from Fonterra.

The determination finds that Fonterra's transport charge is not reasonable and breaches the Regulations.

In its final determination, the Commission has specified a method of calculating the reasonable transport cost to Open Country. This method results in a transport charge to Open Country of 17.15 cents per kgMS. The Commission subsequently ordered Fonterra to pay $211,426 in compensation to Open Country Cheese.

Under the Dairy Industry Restructuring (Raw Milk) Regulations 2001, Fonterra is 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'.

For the 2004/2005 season, Fonterra proposed to charge Open Country 22.1 cents per kilogram of milk solids (kgMS) for transport. This amount was based on Fonterra's budgeted average national transport cost. Fonterra argued that the reasonable transport cost should reflect the fact that it optimises its national milk collection network and therefore, a charge based on the national average is appropriate.

Open Country alleged that the national average-based cost that Fonterra proposed to charge Open Country does not account for Open Country's particular circumstances. The Commission considers the reasonable transport cost should reflect the particular characteristics of supply to Open Country.

The Commission's determination is available on www.comcom.govt.nz (select Public Registers/Dairy).

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.

ENDS

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