10 Jan 2014

Fonterra dispute 'likely' to remain secret

9:25 pm on 10 January 2014

An expert on arbitration says it's unlikely the public will ever know the details of a dispute between Danone and Fonterra, as the case will be settled behind closed doors.

The French food giant and the world's largest manufacturer of yoghurt said last year's botulism scare involved serious failings on Fonterra's part and has terminated its supply contracts with the New Zealand dairy co-operative.

Danone products.

Photo: AFP

The company is taking High Court action against Fonterra in Auckland and has also lodged arbitration proceedings in Singapore.

Danone and Fonterra had an agreement to settle any dispute in Singapore, an internationally recognised arbitration hub.

Deborah Hart, executive director at the Arbitrators' and Mediators' Institute of New Zealand, said it's unusual for court proceedings to be filed as well, and it's likely to be an attempt by Danone to make some aspects of the case public.

However, Ms Hart said the case will disappear from public view once it goes into arbitration, as this is a confidential process.

"We may never know the outcome, we may never know what happens in the proceedings themselves and the arguments that are being made - and that is one of the benefits of arbitration."

Profits predicted to take a hit

An analyst says losing Danone as a customer could cost Fonterra up to $21 million a year in lost profits.

Danone has previously said it wanted at least €200 million ($NZ330 million) in compensation, but on Thursday said it expects a final figure to be found at trial.

ANZ Bank economist Con Williams said there are reports that Danone will be seeking close to $NZ500 million. He said the figure is more than half Fonterra's 2013 earnings and would cost each farmer about $43,000 in losses.

The head of research at stockbroking firm Forsyth Barr said Danone makes up about 5% of Fonterra's milk powder business, and that's worth between $16 million and $21 million a year.

Andy Bowley said a court battle could drag on for years, but any outcome is unlikely to have any lasting financial impact on the co-operative because Fonterra could lower the milk price it pays farmers to make up the cost.

Another analyst, David Stanley of Woodward Partners, believed the best outcome for the parties would be an out-of-court settlement.

"The most sensible outcome would be for Fonterra and Danone to reach a settlement that recognises the benefits that accrued one to the other from their existing relationship."

Mr Stanley said the companies would be able to work together again eventually.