Farmers who ended up supplying Fonterra Cooperative Group when it bought a failed Canterbury dairy business out of receivership shouldn't be entitled to the benefits provides to its shareholder farmers, the Court of Appeal heard today.
Fonterra is appealing a decision in the High Court in Auckland last December, where Justice Matthew Muir ruled the milk processor breached the Dairy Industry Restructuring Act (DIRA) under which it operates by imposing inferior terms on farmers who had previously supplied New Zealand Dairies Limited (NZDL).
Fonterra acquired the independent processor's plant in 2012 and took 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 5 cents less per kilogram of milk solids than the contract milk price and bought 1,000 Fonterra shares but couldn't "share up" - become fully share-backed - in their first year of supplying Fonterra. According to DIRA, the legislation enabling the merger of the Dairy Board with the New Zealand Dairy Group and Kiwi Cooperative Dairies, Fonterra is not able to give new entrants different terms from its existing shareholding farmers. Justice Muir found that the farmers qualified to become fully-fledged shareholders and Fonterra misled them about their ability to buy more shares.
In the appeal court today, Fonterra's lawyer described the 1,000 shares owned by each farmer as a "token" and said they didn't qualify as 'shareholder farmers' under the terms of DIRA, provoking questions from Justice Helen Winkelmann and Justice Tony Randerson.