Open Country set to appeal profits ruling

The Waikato dairy company Open Country Cheese is appealing against a ruling that Fonterra can use profits from share sales to bump up the price it charges independent processors for milk.

Last month, the Commerce Commission ruled Fonterra did not breach dairy industry regulations by including retained profits from selling shares in National Foods and Wrightson when it calculated the wholesale milk price last season.

The inclusion meant Open Country was due to pay Fonterra more than $700,000 extra for milk from last season than it would have if the profits were not included.

This impost would take Open Country from a roughly break-even position for the season to a loss.

Open Country chairman Duncan Milne said an appeal to the High Court was to be lodged by last Friday.

Open Country has previously accepted that retained profits generally can be part of the calculation under the relevant regulations.

Total payout to Fonterra farmers for their milk, plus retained profits from other activities, minus an assumed rate of return on farmers' shares, helps set a proxy price for what Fonterra farmers are theoretically able to be paid for their milk.

This proxy price becomes the basis for the wholesale price charged to farmers.

But Open Country argued that the National Foods and Wrightson share sales were "one-offs" of a capital nature and should not be included in the calculation.

Milne said Open Country's feeling was that the commission's determination ran counter to the intent of the Dairy Industry Restructuring Act, which aimed to allow independent processors to get milk from Fonterra at a reasonable price.