In an intense dispute between New Zealand dairy companies Synlait and A2 Milk Co., a new pricing disagreement has been added to the existing contract row, heightening the risk of further deterioration in their relationship. Synlait disputes that A2 Milk Co. had the right to cancel an exclusivity of supply arrangement and this has now entered arbitration (“Synlait spat with A2 Milk Co. now includes pricing dispute”). Synlait recently entered into negotiations under the Nutritional Powders Manufacturing and Supply Agreement regarding a separate issue about pricing for products manufactured by Synlait for The A2 Milk Co. The resolution of this matter is crucial as it could impact the margin for certain products historically and going forward. Synlait advises that the good faith negotiation period has expired and will refer the pricing matters to a confidential binding arbitration.
The companies have agreed to go down the arbitration route over the cancellation of the exclusivity contract and the process will also examine whether certain priority arrangements in favor of The A2 Milk Co. under the Nutritional Powders Manufacturing and Supply Agreement will cease to apply if the exclusivity provision is found to have been validly cancelled. This original dispute arose from A2 Milk, Synlait’s second-largest shareholder with a 19.8% stake, providing notice cancelling exclusive manufacturing and supply rights due to Synlait’s failure to maintain such exclusive rights. The rights covered stages 1 to 3 of A2’s infant-formula products – including A2 Platinum – for sale in China, Australia, and New Zealand.
The companies are also discussing claims around costs associated with product services, surplus or damaged packaging materials costs, new product development, lost profit on delayed deliveries, and alleged failure to share cost savings from the use of third-party ingredients and are taking part in negotiations to resolve these matters. Synlait remains of the view that both companies stand the best chance of weathering the China market dynamics and continues to hold the Chinese regulatory State Administration for Market Regulation license for A2 Milk Co.’s Chinese-labelled infant-formula products. A2 Milk Co. remains confident in respect of all the issues currently in arbitration and its overall position in relation to the pricing and other matters in dispute as noted in Synlait’s announcement.
The main issues in the dispute between Synlait and A2 Milk Co. could greatly affect the food and beverage industry trends, the food and drink business, and food and drink consumer trends.
