9 Jan 2014

Fonterra being taken to court by Danone

9:20 pm on 9 January 2014

Food giant Danone is terminating its supply contracts with Fonterra and taking the New Zealand dairy co-operative to the High Court.

Danone says the legal action is so all the facts around the botulism scare can come to light and it can be compensated for the harm it says it suffered.

Danone sign on dairy plant in France.

Photo: AFP

The French company has previously put the cost of a product recall at €350 million and has said it wanted at least €200 million in compensation. On Thursday, the firm said it expects a final figure to be found at trial. It is also starting legal proceedings in Singapore.

Fonterra said on Thursday it would vigorously defend itself against the legal action and stands by its track record of having world-class food safety with robust testing.

Fonterra Shareholders' Council chairman Ian Brown said the court action was not unexpected. "Danone had made their intentions reasonably clear before Christmas in terms of what they may do so we're just working through the process."

Danone is the parent company of manufacturer Nutricia, which was forced to recall infant formula including 67,000 cans in New Zealand alone, after Fonterra incorrectly warned that it could be contaminated with a potentially fatal bacteria in August 2013.

Primary Industries Minister Nathan Guy.

Primary Industries Minister Nathan Guy. Photo: RNZ

The food giant had to withdraw milk formula product from China and other Asian markets.

A report commissioned by Fonterra's board on the handling of the scare released in October last year listed failures including insufficient senior oversight, inadequate testing for botulism and a failure to recognise the explosive reputational risk of its food scare.

Shares in the Fonterra Shareholders Fund for outside investors was 1.7% down when trading ended on Thursday.

Govt not supporting Fonterra

The Minister for Primary Industries said it is disappointing that Fonterra and Danone have not resolved their dispute outside court.

Nathan Guy said on Thursday that the Government would not be giving Fonterra any support.

"This is basically a commercial issue between our biggest exporter and Danone, and now it looks like it's going to be heading to the court and it would be very unwise for me to be commenting any further."

Mr Guy said New Zealand has a proud reputation and history as a food producer.