A spat has broken out between New Zealand milk and infant-formula companies A2 Milk and Synlait after the former ripped up a long-standing exclusive supply contract.

Synlait supplies A2 Milk with dairy and infant-formula products and ingredients. On Sunday (17 September), A2 Milk announced via a statement on the New Zealand stock exchange (NZX) it had provided Synlait with written notice cancelling exclusive manufacturing and supply rights enjoyed by the company. The rights covered stages 1 to 3 of A2’s infant-formula products for sale in China, Australia and New Zealand.

A2 Milk, which is Synlait’s second-largest shareholder with a 19.8% stake, said it cancelled the exclusivity deal “due to Synlait’s delivery in full and on time performance during FY23 falling below the level required for Synlait to maintain such exclusive rights”.

However, it said “Synlait remains an important supplier”.

Yesterday, Synlait responded. In a stock-exchange filing, it said: “Synlait disputes that The A2 Milk Company has the right to cancel the exclusivity arrangements.”

It said A2 Milk has confirmed that Synlait will in practice maintain exclusivity until such time as the matter is resolved. It said the contract contains a 20-day dispute resolution process and this would be followed by arbitration if the matter is not resolved.

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Synlait also pointed out it holds the Chinese regulatory State Administration for Market Regulation (SAMR) licence. The licence, attached to its Dunsandel manufacturing facility, covers A2 Milk products. Synlait said it expects to keep manufacturing those products for the China market until the licence expires in September 2027.

Local media outlets have suggested that by scrapping Synlait’s exclusivity deal A2 Milk can instead utilise the purpose-built dairy nutritionals facility, Mataura Valley Milk, which it co-owns with China Animal Husbandry, and which runs at a loss.

The Nutritional Powders Manufacturing and Supply Agreement (NPMSA) between A2 Milk and Synlait will remain in place on a rolling term as it can only be terminated by either party on three years’ notice.

Synlait also told the market in its NZX statement it had completed its bank refinancing with new banking syndicate members ANZ, Bank of China, China Construction Bank, HSBC, and Rabobank. The company now has a working capital facility of NZ$240m ($142.5m) and revolving credit facilities of NZ$230m.

It also confirmed its full-year 2023 net profit guidance – which ranges from a net loss of NZ$5m to a net profit of NZ$5m – and said A2’s announcement will have no impact on its FY23 performance.

The group will release its full-year 2023 results on Monday (25 September).

In April, A2 Milk said it was “surprised” at a profit warning issued by Synlait, which had warned investors it could book a net loss of NZ$5m, compared to its previous forecast of an annual net profit after tax of NZ$15m-25m.