New Zealand dairy giant Fonterra will appeal the local competition ruling landed against the company over milk suppliers to smaller local dairy processors.

Fonterra said today (3 July) that it would fight the ruling in its dispute with Kaimai Cheese Company and The Grate Kiwi Cheese Company.

In June, New Zealand’s Commerce Commission said Fonterra had breached supply rules and ordered the group to pay eight months of compensation.

The Commission ruled that Fonterra had broken the Dairy Industry Restructuring Act 2001 by not supplying Kaimai and Grate Kiwi with milk.

“This is not correct. Fonterra did supply milk,” the company argued today.

Barry Harris, Fonterra’s milk supply director, said it was “not fair” for Fonterra farmers to pay an “unnecessary cost” while a new framework for determining for regulating milk prices is drawn up.

“The raw milk regulations cost each of our farmers around NZ$1,000 (US$630.43) a year. This is money that they can’t afford and the Commerce Commission decision opens up eligibility for this milk further. This is an important principle that we have to defend. Otherwise it could potentially cost our suppliers even more.”

The 2001 law was drawn up to ensure there remained competition in New Zealand’s dairy processing sector in the wake of the merger of the two largest New Zealand dairy cooperatives and the New Zealand Dairy Board – a deal that created the present day Fonterra.

Under the regulations, Fonterra has had to supply 600m litres of raw milk to so-called “independent processors” during the 2008/09 season.