1 Dec 2017

Fonterra unlikely to challenge tribunal fine

4:14 pm on 1 December 2017

Fonterra has been ordered to pay damages to French food giant Danone of $183 million over the botulism scare four years ago.

Baby formula was pulled off the shelves in 2013 as a precaution, but subsequent tests ruled out botulism.

Baby formula was pulled off the shelves in 2013 as a precaution, but subsequent tests ruled out botulism. Photo: AFP

An arbitration panel in Singapore backed Danone's claim for compensation for damage to its business and lost earnings.

The damages are much less than Danone was seeking though are still a significant win for the company.

Watch Fonterra's press conference responding to the tribunal ruling:

Fonterra had argued its supply agreement meant it was liable for no more than around $30m in compensation, while the French firm had been claiming as much as $1 billion.

"We are disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business," Fonterra chief executive Theo Spiering said.

In response, Fonterra has cut its forecast dividend to 35 to 45 cents a share for the 2017/18 financial year, down from 45 to 55 cents.

The decision has no impact on the forecast milk price of $6.75 a kilo of milk solids.

"Fonterra is in a strong financial position and is able to meet the recall costs," Mr Spierings said.

Fonterra ceo Theo Spierings

Fonterra chief executive Theo Spierings Photo: RNZ / Diego Opatowski

Chairman John Wilson said Fonterra's legal team was still pouring over the 300-page decision but it was "highly unlikely" the decision could be challenged.

"As the chairman and as a farmer, I am angry and I am disappointed with the tribunal's decision...However, we do accept their judgement and will now turn our attention to delivering the best possible return for our farmers despite this outcome."

Despite his anger, Mr Wilson said he was pleased that Fonterra had learnt from the incident and improved the business.

"Our business operates significantly differently today than it did back then [four years ago] and that is critical for our farmers."

He said Fonterra now wanted to "move on".

This morning the company called a trading halt on its shares on the Australian and New Zealand stock exchanges and the Fonterra Shareholders Market, to give it time to consider the outcome of its arbitration with Danone.

The company is now trading again.

The dairy company had previously put aside about $11 million to pay for any damages.

The dispute arose when Fonterra recalled dairy products containing potentially contaminated whey protein concentrate in 2013. It turned out to be a false alarm as subsequent tests ruled out botulism.

Danone is the parent company of manufacturer Nutricia, which was forced to recall infant formula including 67,000 cans in New Zealand alone. The French company claimed significant losses over the contamination scare and subsequent product recall, and the companies have been in arbitration since February last year.

In a statement, Danone said the arbitration decision should mean the lessons of the crisis about the food scare were not forgotten.