The already strained relationship between New Zealand dairy companies Synlait and A2 Milk Co. faces an increased risk of deterioration after it was revealed that a pricing dispute has been added to the existing contract row.
The ongoing contractual dispute, wherein Synlait contests A2 Milk’s authority to terminate an exclusivity of supply arrangement, has progressed to arbitration. However, in a stock exchange announcement on December 22, Synlait disclosed a fresh point of contention between the two companies.
It said, “Synlait recently entered a good faith negotiation period under the NPMSA [the Nutritional Powders Manufacturing and Supply Agreement] regarding a separate issue between the parties about pricing regarding products manufactured by Synlait for The A2 Milk Co.
“The resolution of this matter is important because it could impact the margin for certain products manufactured under the NPMSA historically and going forward.
“Synlait advises that the good faith negotiation period under the NPMSA expired yesterday. Synlait wants the matters resolved and will refer the pricing matters to a confidential binding arbitration.”
No specific information was provided regarding the precise nature of the pricing matter mentioned by Synlait.
In October, the companies mutually decided to pursue arbitration to address the termination of the exclusivity contract.
Continue Exploring: New Zealand’s A2 Milk and Synlait locked in dispute over contract termination
Synlait stated that the assessment will also consider whether the obligation to secure a minimum annual volume of product and specific priority arrangements benefiting The A2 Milk Co. under the NPMSA will no longer be in effect if the exclusivity provision under the NPMSA is determined to have been validly revoked.
The initial disagreement arose when A2 Milk, Synlait’s second-largest shareholder holding a 19.8% stake, issued written notice in September to terminate the exclusive manufacturing and supply rights previously granted to the company.
The rights encompassed stages 1 to 3 of A2’s infant-formula products, including A2 Platinum, intended for sale in China, Australia, and New Zealand.
It stated that the exclusivity agreement was terminated “because Synlait’s performance during FY-23 in terms of full and timely delivery fell below the threshold necessary for Synlait to retain such exclusive rights.”
In its latest announcement, Synlait disclosed that discussions between the companies also involve claims related to expenses linked to product services, costs of surplus or damaged packaging materials, expenses tied to new product development, lost profits due to delayed deliveries, and allegations of failure to share cost savings arising from the utilization of third-party ingredients.
The parties are taking part in negotiations to attempt to resolve these matters.
Synlait said that it remains of the view that “together both companies stand the best chance of weathering the China market dynamics”.
It continues to hold the Chinese regulatory State Administration for Market Regulation (SAMR) license which is attached to Synlait’s Dunsandel manufacturing facilities.
The license, which lasts until 2027, is for A2 Milk Co.’s Chinese-labelled infant-formula products.
Responding to Synlait’s latest statement, A2 Milk Co. said it “remains confident” in respect of all of the issues currently in arbitration.
It added, “The company is also confident in its position overall in relation to the ‘new pricing and other matters in dispute’, as noted in Synlait’s announcement and which largely relate to matters initially raised by A2 Milk Co.”.
