A2 Milk-Synlait head to arbitration over supply dispute

The news: Dairy producers A2 Milk and Synlait will enter confidential binding arbitration after failing to resolve a dispute over exclusivity rights on supply of certain types of infant milk formula products.

The numbers: Both dual-listed dairy producers on Tuesday said they had been unable to resolve their dispute within a 20-day good faith negotiation period and the issue would now be brought to arbitration. A2Milk shares are down 37% so far this year, while Synlait shares have lost 61% of their value.

The context: A2 Milk sent Synlait a written notice last month cancelling the long-running exclusive supply rights for infant milk formula products sold in China, Australia and New Zealand, as it tries to gain more control over its supply chains. Synlait has continued to dispute a2 Milk’s authority to cancel the supply agreement. The two companies have held a manufacturing and supply arrangement for more than a decade, with A2 also holding a nearly 20% stake in Synlait. However, both have seen sales drop amid regulatory uncertainty and weaker sales in China, the world’s biggest infant formula market.