Fonterra has confirmed it has received an application from a Hong Kong-based company to supply it with a significant amount of milk - and it's not happy about it.
Natural Dairy Holdings is one of the bidders for the 16 North Island farms that the receivers of the Crafar family dairy business have put on the market.
Through an associated company, UBNZ, Natural Dairy has already signed a conditional sale and purchase agreement with the receivers, but will need Overseas Investment Office clearance if its bid is successful.
The company also has plans to process infant formulas and long-life milk for export to China.
It says it's already negotiated a contract to produce and export 150 million packs of long-life milk, using Fonterra-supplied milk and a New Zealand processing operation.
Fonterra spokesperson Alex Duncan says that under the Dairy Industry Restructuring Act, the co-operative is obliged to supply the milk Natural Dairy has requested.
But he says it's another example of why Fonterra believes that the way in which the Act is applied needs to be reviewed.
He says it makes no commercial sense for Fonterra to have to supply milk to other processors who can use it to compete with it in export markets.
Farmer Lloyd Downing who supplies Fonterra says it doesn not seem fai that Fonterra is legally obliged to supply its competitors and he believes the Dairy Industry Restructuring Act is being misused.
He wants the Minister for Agriculture to consider the matter.