Dairy giant A2 Milk has removed some exclusivity on infant...

Dairy giant A2 Milk has removed some exclusivity on infant formula supply deals with NZ industry peer Synlait due to a fall in "delivery in full and on time performance" levels.A2M sent Synlait a written notice on Friday, cancelling the exclusive manufacturing and supply rights in respect of stages 1 to 3 of its infant milk formula (IMF) products, including a2 Platinum, for sale in the markets of China, Australia and New Zealand. Its stage 4 IMF and other products supplied by Synlait are not subject to exclusivity. Synlait has entered a trading halt while it considers the notice of cancellation and will respond formally in due course. Synlait's delivery in full and on time performance (DIFOT) during FY23 fell below the level required for it to maintain such exclusive rights, including as referenced in A2 Milk's April 26 notice and primarily in relation to English label IMF product.The manufacturing and supply agreement between the two parties "will remain in place notwithstanding removal of exclusivity and Synlait remains an important supplier, A2M told its investors. Pricing terms and other key terms will continue to apply, including being on a rolling term until either party gives three years' notice of termination to the other party.A2M said it considers that Synlait "continues to be contractually bound to supply up to the same prescribed IMF volume per annum, including all stages of both its current English label product, a2 Platinum, and a2MC’s new China label GB product, which is being transitioned in the China market in the first half of next year."If Synlait disputes the notice, the matter will be resolved through good faith negotiations, followed by confidential binding arbitration as provided for under the dispute resolution provisions of the agreement. In the meantime, A2M has given until end of next year to maintain Synlait's exclusivity "until any dispute is resolved"."Even once the matter is resolved, a2MC considers that a2MC will continue to have the right, but not the obligation, to fully source its current IMF products from Synlait." Shares last at $4.48; Synlait at $1.18 on the ASX.

Extract from today's Australian