Fonterra hearing extended

The Commerce Commission has extended a conference to hear submissions on the first big regulatory challenge to dairy group Fonterra under the legislation that enabled its mega-merger.

If the commission's preliminary view - a draft determination released in April - is confirmed, Fonterra will be found to have breached the Dairy Industry Restructuring (Raw Milk) Regulations that were created to constrain its dominance of raw milk supply. Fonterra controls more than 90 per cent of the nation's milkflows.

If the company is confirmed to have overcharged one of its newest rivals, Open Country Cheese, for transport costs on raw milk, the commission will order it to pay compensation, plus interest. Open Country is backed by former National Deputy Prime Minister Wyatt Creech.

The commission's deputy chair, David Caygill, will now spend three days rather than two hearing submissions on a draft determination that rebuffed Fonterra over its transport charges. The conference will now start on Tuesday and run to Thursday.

Open Country - New Zealand's first new independent cheesemaker since 2001 - last year complained that Fonterra has been charging the equivalent of 22.1c/kg milksolids for transport of raw milk that it is required by statute to provide at cost.

Open Country says the independent Tatua Co-operative Dairy Company in nearby Morrinsville spends only between 6.19c/kg and 8.6c/kg milksolids on its milk transport.

Fonterra told the commission its proposed charge was based on its national average transport costs, but the commission said in its April draft determination that the cost should be cut back to the equivalent of 14.76c/kg milksolids.

Open Country started manufacturing last October, with a $28 million factory set to produce 5000 tonnes of cheese a year, at Waharoa, 53km east of Hamilton and about 20km from Fonterra's own big cheese factory at Waitoa.

Fonterra is obliged to supply independent rivals with up to 50 million litres of milk each a year. Open Country's factory has a capacity of 200 million litres and it has started buying milk from nearby farmers.

The commission has said that reasonable transport costs could be based on what it would cost a stand-alone Waikato region raw-milk transport division for Fonterra, scaled to reflect the cost of transport to Open Country: 14.76c/kg of milksolids for the 2004-05 season.

It said Fonterra incurred higher transport costs because it was bringing milk to mega-sites where huge volumes could be efficiently processed. The extra transport costs involved should not be passed on to independent processors.

A Fonterra spokesman has said charging independent processors transport costs based on the company's average cost of transporting milk was fairer.

- NZPA