Fonterra could owe its Australian farmers $64 million because of a milk supply contract it signed in 2012.
If it does not pay up voluntarily, a class action is waiting in the wings to force the issue in the courts.
The dairy giant’s Australian chief executive Rene Dedoncker met directors of its farmer milk supplier body, the Bonlac Supply Company, on Thursday to discuss the matter.
Under its milk supply contract with Bonlac, Fonterra is legally obliged to match or top the farmgate price paid to farmers by rival Murray Goulburn.
At the beginning of 2016, MG slashed its payout to farmers and announced it would claw back some of what it had already paid out.
Following an uproar and the resignation of its chief executive and financial officer, MG this week increased the average milk price it paid its farmers for the 2015-16 financial year to $5.53 a kilogram of milksolids.
Farmers also no longer have to pay back any “overpayments” to MG.
Fonterra cut its payments to farmers from $5.75 to $5kg/MS for the 2015-16 season, but in order to make an average payout price of $5 for the whole season, it reduced its payout to $1.91 for the last two months.
The upshot of MG’s u-turn is that Fonterra might legally have to pay an extra 3.5c a litre for the 1.7 billion litres of milk its farmers supplied during 2015-16.
With 1400 suppliers to pay, it could add up to $64m.
In a statement, Fonterra said: “We anticipated several elements of MG’s announcement, and we’re working through what this means for our farmers and our Australian business. We are meeting with some members of the Bonlac Board, as they’re an important stakeholder in this, and we will provide an update as soon as we can.”
Farmers have vowed to pursue legal action if Fonterra does not agree to fully reimburse them.
Melbourne lawyer David Burstyner said he had more than 200 farmers willing to support the class action.
“What Fonterra did was legally and morally wrong. We are seeking the difference between what was promised and what was paid.”
Burstyner said he would be happy to drop the case if Fonterra “did the right thing”. If a recent MG court case was any guide, it could cost Fonterra $6m.
He said the supply agreement with Bonlac was mystifying as neither he nor farmers had ever seen it.
“We’ve only got Fonterra’s word for it. The clause about matching MG was put there when Bonlac became the supplier, for the farmers’ protection.”
Last week Australia’s competition watchdog the Australian Competition and Consumer Commission (ACCC) decided not to take action against Fonterra for the way it changed its prices to farmers last year.
However it said it would be taking MG to Federal Court.