McCormick & Co.'s rice venture in India, Kohinoor Speciality Foods (KSF), has been rocked by a dispute over supplies to the unit.
The US spice giant's venture partner, Indian food group Kohinoor Foods Ltd (KFL), has accused KSF of breaking a supply contract drawn up when the business was formed in 2011.
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KFL has said the venture agreement means it is the exclusive supplier of rice to the venture for seven years, with a lock-in period for five years. The Indian group has accused KSF – in which it holds a 15% stake, with McCormick owning the rest – of procuring supplies from elsewhere.
KFL said it had contacted the venture to object to the alleged violations, with its last email sent to the unit on 26 June. However, KFL said the venture had since sent it a notice to end the supply agreement. It claimed the venture had done so "to pre-empt the charges levelled by us".
KSF denies it has broken the rice deal but confirmed it has sought to end the contract."We have not violated any contractual or any statutory obligations with Kohinoor Foods Ltd," the venture told just-food in a statement supplied by McCormick today (29 September). "We have served a notice to terminate our agreement to Kohinoor Foods Ltd. In view of the provisions of the said contracts relating to confidentiality and restrictions on public announcements, which bind both parties, we are unable to make any further specific comments."
When asked why KSF had decided to end the contract, a spokesperson for McCormick declined to comment, pointing to the restrictions on announcements under the venture agreement.
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By GlobalDataKFL argues "there is no substance" behind the venture's decision to end the supply agreement. It said it had already sent a response to KSF and the venture's legal representatives.
"In our reply we have established that the agreement has been breached by the KSF by sourcing supplies from an alternate supplier, during the lock-in period. We have also stated that since KSF has violated the RSA without cause and without giving due notice as provided in RSA, KFL may also be treated free from the provisions of various agreements. In this regard we are taking all necessary steps to protect the interest of the company," KFL told the Bombay Stock Exchange yesterday.
McCormick and KFL formed the KSF venture four years ago. It was agreed the venture would sell Kohinoor branded food products in India.
The US group spent $115m on the deal, which, as well as its 85% stake, will also see the "transfer of certain trademarks and non-compete undertakings" from KFL and the Arora family that part-owns and runs the Indian firm.
In its statement to just-food, KSF said the end of the agreement with KFL would "not affect the continuous supply of high-quality Kohinoor-branded basmati rice" to the venture's customers. "Kohinoor Speciality Foods India Pvt. Ltd. has the sole rights to use the Kohinoor brand for rice in India. We remain committed to the Kohinoor brand and to pursuing its growth in India where we have made significant investments over the years."
