The relationship between New Zealand dairy companies Synlait and A2 Milk Co. risks deteriorating further after it was revealed that a pricing dispute between the businesses has been added to the existing contract row.

That contract row – in which Synlait disputes that A2 Milk had the right to cancel an exclusivity of supply arrangement – has now entered arbitration, but in a stock exchange announcement this morning (22 December), Synlait revealed a new area of disagreement between the 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 details were supplied as to the exact nature of the pricing issue to which Synlait is referring.

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The companies agreed in October that they would go down the arbitration route over the cancellation of the exclusivity contract.

Synlait said today that the process will also look at whether procuring the supply of a minimum annual volume of product, and certain priority arrangements in favour of The A2 Milk Co. under the NPMSA, will cease to apply if the exclusivity provision under the NPMSA is found to have been validly cancelled.

The original dispute resulted from A2 Milk, which is Synlait’s second-largest shareholder with a 19.8% stake, providing Synlait in September 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 – including A2 Platinum – for sale in China, Australia and New Zealand.

It said it cancelled the exclusivity deal “due to Synlait’s delivery in full and on time performance during FY-23 falling below the level required for Synlait to maintain such exclusive rights”.

Synlait revealed in its announcement today that the companies are also discussing claims around costs associated with product services, surplus or damaged packaging materials costs, new product development, lost profit on delayed deliveries, and alleged failure to share cost savings from the use 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.”.