Synlait Milk and The A2 Milk Company, two major players in New Zealand’s dairy industry, have resolved a nearly year-long contractual and pricing dispute. As part of the settlement, A2 Milk will make a one-time payment of NZ$24.8 million ($14.9 million USD) to Synlait to compensate for withheld payments. The settlement marks the end of an exclusivity supply arrangement under the Nutritional Powders Manufacturing and Supply Agreement (NPMSA) between the two companies.
Resolution of a Year-Long Dispute Between Synlait and A2 Milk
Synlait Milk, a New Zealand-based leader in dairy processing known for its wide range of products including fresh milk, nutritional powders, and infant formulas, and The A2 Milk Company, also headquartered in New Zealand and recognized for its A2 protein-only milk, have successfully resolved a prolonged contractual and pricing dispute. This resolution comes after nearly a year of disagreements, marking a significant turning point in their business relationship. Synlait and A2 Milk, both influential players in the global dairy industry, have reached a settlement that addresses key issues in their partnership, highlighting their commitment to sustainability, innovation, and market presence in New Zealand and beyond.
Settlement Details and Financial Compensation
A key component of the settlement, announced on August 16, is a one-off payment from A2 Milk to Synlait of NZ$24.8 million ($14.9 million USD). This payment compensates Synlait for payments withheld by A2 Milk, which had been a point of contention between the two companies since September of the previous year. This agreement ends a standoff that arose when A2 Milk announced its intention to cancel the exclusivity supply arrangement with Synlait due to financial uncertainties faced by Synlait, including a warning from Synlait of a potential net financial loss.
Background of the Dispute
The dispute between Synlait and its second-largest shareholder, A2 Milk, dates back to September when A2 Milk issued a notice to cancel their exclusivity supply agreement. This arrangement, governed by the Nutritional Powders Manufacturing and Supply Agreement (NPMSA), allowed Synlait to supply dairy ingredients, including infant formula, exclusively to A2 Milk. The contract included a stipulation that it could only be terminated with a three-year notice period, leading to the prolonged dispute when A2 Milk attempted to exit the agreement early.
Impact on the Nutritional Powders Manufacturing and Supply Agreement (NPMSA)
According to the stock exchange filings by Synlait, the company has agreed that the NPMSA “will cease to apply” from January 1st. However, Synlait indicated that it still expects to produce “all products” under the contract in the “short term,” suggesting a transitional period as both companies adjust to the new terms of their business relationship.
In a separate filing, A2 Milk confirmed that Synlait has accepted the validity of the contract termination notice issued on September 15th. The termination applies specifically to the A2 Milk’s A2 Platinum infant formula, covering stages one to three, which is supplied to key markets in China, Australia, and New Zealand.
The resolution of the dispute between Synlait and A2 Milk brings clarity to the future business dealings between the two dairy giants. While the termination of the NPMSA marks a significant shift in their partnership, both companies appear to be moving forward with a renewed focus on their respective business strategies. The settlement also underscores the importance of clear and structured agreements in long-term business relationships, especially in a highly competitive and regulated industry like dairy.
