The a2 Milk Company

History

The a2 Milk Company is the successor of A2 Corporation Limited, a New Zealand company founded in 2000 by Dr Corran McLachlan, who was researching health effects of A1 beta-casein, and Howard Paterson, who was one of New Zealand's richest men, a significant dairy farmer, and a stakeholder in Fonterra, a dairy cooperative. The company commercialised a genetic test to determine whether a cow will produce milk without the A1 protein, and to market A1 protein-free milk.

Initially, A2 Corporation focused on dairy farm breeding programmes to develop herds that would produce only A1 protein-free milk. However the launch of A1 protein-free milk was delayed by opposition from Fonterra, which had protected contracts under New Zealand law with about 98% of New Zealand dairy farms. Seeking leverage in the battle with Fonterra over access to farmers, and over patent rights, Paterson led the company into litigation against Fonterra, asking the New Zealand High Court to order Fonterra to put health warnings on its conventional milk concerning risks of type 1 diabetes, heart disease, autism and schizophrenia due to the presence of A1 beta-casein, and to force Fonterra to publicly disclose all the information it had about the links between A1 beta-casein and health risks. The litigation threatened New Zealand's economy and international reputation as at the time Fonterra was responsible for 20% of New Zealand's exports. The press over the litigation and public concern over the claims of A2 Corporation led the New Zealand Food Safety Authority and the Ministry of Health and the Food Standards Australia New Zealand to issue statements confirming the safety of conventional milk.

A2 Corporation was able to obtain agreements with enough dairy farmers to launch A1 protein-free milk under its a2 and a2 MILK brands in New Zealand at the end of April 2003. In the middle of 2003, both founders of the company died. In July, Paterson was found dead in his hotel room during a business trip at the age of 50, and a month later Dr Corran McLachlan died of cancer at the age of 59. In New Zealand it is illegal to make health claims about a food product without providing scientific evidence and registering the food as a medicine, and in November 2003 the New Zealand Commerce Commission advised that A2 Corporation Ltd and its licensed producers of A1 protein-free milk had agreed to amend the health claims in their promotional material following a warning from the commission. By end of 2003 the weakened A2 Corporation had withdrawn the litigation against Fonterra and negotiations had resumed.

The company, which had been in a tenuous financial situation since beginning trading in May, went into administration in October and was liquidated in November, owing farmers and processors tens of thousands of dollars. A NZ$1.27 million federal government grant awarded to the company in August as part of the Regional Partnerships Program was also cancelled. A2 Corporation set up a new subsidiary and licensee, A2 Australia, to market and produce its product. A2 Australia established new contracts with the dairy farmers who had A1 protein-free herds, promising better payment terms—a week in advance instead of once per month, after shipment.

In December, A2 Corporation sold its interests in A2 Australia to Fraser & Neave, a food marketing giant in Asian markets, for about $1.1 million. A2 Corporation had lost about $1.3 million for 2004, the same as it has lost the year before; the sale allowed A2 Corporation to rely on Fraser & Neave to build the Australian and Asian businesses. A2 Corporation focused on recovering from the deaths of its founders organizationally and financially, relied on its New Zealand licensees to develop the New Zealand market, and turned its focus to developing overseas markets.