Milkio Foods Limited, a Hamilton-based dairy company, was recently fined $420,000 under the Fair Trading Act 1986 after making false and misleading claims about the origin of its ghee products, and for misusing the FernMark.
Milkio pleaded guilty to 16 charges brought by the Commerce Commission under the Fair Trading Act 1986.
In a District Court decision dated 22 August 2024[1], Judge Ingram found that the misrepresentations made by Milkio exploited New Zealand's reputation for high-quality dairy products, and risked damaging not only consumer trust but also the reputation of the broader New Zealand dairy industry.
His Honour considered the conduct in this case to be exactly what the Fair Trading Act was designed to punish.
Far from “100% pure NZ”
Milkio made a number of representations over the years that its ghee[2] was “100% Pure New Zealand”, “sourced from organic grass-fed cow milk butter obtained solely from New Zealand”, and “manufactured with best quality New Zealand dairy ingredients that meet New Zealand’s stringent non GMO standards”. Milkio sold its products both within New Zealand and overseas.
The “100% pure New Zealand” claims were repeated throughout Milkio’s marketing, branding and labelling.
In reality, 21.6% of the total volume of butter used by Milkio to make its ghee (some 187 tonnes) was butter imported from India.
Misuse of the FernMark
Milkio also misused the FernMark:[3]
The FernMark, is a trade mark officially recognised and endorsed by the New Zealand Government. It is a trusted mark that communicates a product's origin and connection to New Zealand, which carries with it the associated values of trust, authenticity, innovation, and respect.
More information about the FernMark and how it may be licensed for use by qualifying New Zealand businesses can be found at https://www.nzstory.govt.nz/fernmark-licence-programme.
Milkio obtained a license to use the FernMark in 2019, on the basis that its ingredients were wholly sourced and derived from New Zealand organic butter. Milkio repeatedly failed to meet its obligations under this license to disclose changes in the origin of its ingredients, and then falsely confirmed, at the time of renewal in August 2020, that there had been no changes from its initial application that might affect its eligibility for use of the FernMark label.
Milkio also used the FernMark on its buffalo ghee containers, despite never having applied for a license for this product. This product was also imported from India as New Zealand does not have a Buffalo milk industry.
The misuse of the FernMark was described by Judge Ingram as the "cherry on top" of Milkio’s brand strategy, intended to provide an extra layer of quality assurance to consumers.
’Carelessness’ not an adequate defence
Milkio claimed that its misrepresentations were due to carelessness rather than an intentional breach. It was argued that the focus of Milkio’s management “was elsewhere” and that employees acted without the knowledge of management. Judge Ingram did not find this to be credible or particularly relevant.
Milkio’s management was aware of the advantages attaching to perceptions of New Zealand sourced ingredients for dairy products and that Milkio entered the market with the express intention to fill a gap in the market for organic ghee from New Zealand.
Given Milkio’s awareness and commercial intentions, Judge Ingram considered Milkio’s management to have acted with wilful blindness. The managerial negligence was close to the highest possible level, comparable to a deliberate breach.
The total maximum penalty in this case could have run as high as $1.2 million. Judge Ingram’s starting calculation was $700,000, reduced for guilty pleas, cooperation, rectification efforts, and lack of prior convictions.
The importance of consumer trust in the ‘New Zealand’ brand
It was evident that Milkio’s false “NZ made” claims and misuse of the FernMark unfairly exploited New Zealand’s reputation for high-quality dairy products.
This exploitation had the potential to damage not only consumer trust and the reputation of other producers, but also the reputation of the ‘New Zealand’ brand more generally. New Zealand has a particularly strong reputation for high quality dairy products. Milkio’s misconduct risked jeopardising this reputation, affecting all New Zealand dairy producers.
Takeaways
The case serves as a further cautionary tale for businesses seeking to leverage New Zealand’s reputation. It highlights the importance of complying with New Zealand’s country of origin requirements, consumer law obligations, FernMark licensing requirements, the risks that false or misleading claims pose to both the business making the claims and the “New Zealand brand” as a whole.
If you have any questions about product claims, or consumer law requirements, please get in touch with one of our experts.
[1] Commerce Commission v Milkio Foods Limited [2024] NZDC 15111
[2] Ghee is widely used in Indian cooking and is simply butter, clarified by heating.
[3] Image shown is the FernMark® with a generic licence number.
