GEA Milfos International Ltd (Milfos) has been ordered to pay a penalty of $825,000 in the Auckland High Court after admitting it engaged in price-fixing with competitor Dairy Automation Ltd (DAL) between at least October 2012 and September 2014. It has also agreed to pay the Commerce Commission $100,000 in costs.

Milfos and DAL provided technology solutions for dairy farmers and competed in the supply, installation, and maintenance of both milk sensors and herd management systems used in the milking process. Milfos did not manufacture its own milk sensor technology, but instead bought milk sensors from DAL to supply farmers.

The commission says Milfos and DAL discussed the possibility of Milfos becoming the exclusive retailer of DAL’s milk sensor products. This arrangement was never entered into. However, in the course of those discussions, Milfos and DAL agreed to use a shared pricing spreadsheet for customer quotes. This fixed prices for the milk sensor products.

The commission reports that, in his judgment, Justice Edwin Wylie noted that the fact the conduct was in anticipation of a legitimate exclusive supply arrangement was not a defence. Milfos and DAL were competing in a market that was important to the New Zealand dairy industry, and one which had limited providers for farmers to choose from. Further, he noted the conduct was undertaken by senior employees and the damage caused was difficult to quantify.

“In my view, Milfos’ conduct was certainly careless – even grossly careless,” Justice Wylie said.

“While Milfos and [DAL] did not set out to enter into an illegal arrangement or understanding, they nevertheless engaged in conduct that gave them an improper advantage over their customers and competitors.”

A copy of the High Court judgment is available on the commission’s case register.

Commission Chair Anna Rawlings says the case serves as a strong reminder to businesses that they must be mindful of agreeing prices with a distributor that competes with them in the retail market.

“The court imposes significant penalties on unlawful agreements between competitors because they have the potential to cause serious harm. Companies should seek legal advice before discussing retail prices with a distributor that competes with them to sell the same products direct to consumers, to ensure they don’t put themselves at risk of breaching the Commerce Act,” she says.

Milfos was acquired by GEA Farm Technologies (GEA) in November 2012. The ultimate holding company of GEA is GEA Group Aktiengesesllschaft (GEA Group), a German holding company with substantial business interests in a number of processing industries.