30 Oct 2013

Fonterra promises improvements after botulism scare

2:44 pm on 30 October 2013

The chairman of Fonterra has promised the company will implement the recommendations from an inquiry into the handling of its botulism contamination scare.

The dairy co-operative's board commissioned the 163-page report after a contamination scare led to its recall of suspect whey protein concentrate in August this year.

Later tests showed the products, which included infant formula, were not tainted with a bacterium that could cause botulism, but the false alarm caused huge losses for some dairy exporters.

The report has recommended dozens of improvements Fonterra should make to ensure there is no repeat of the hugely damaging incident.

Inquiry chairman Sir Ralph Norris says a host of mistakes and errors of judgement were made at Fonterra which led to the incident reaching the proportions that it did.

"There was insufficient senior senior oversight of the crucial decision to engage AgResearch to test for Clostridium botulinum."

He said testing was inadequate, and Fonterra wasn't able to promptly and definitively track the destinations of the affected batches.

"There was only belated recognition and delayed escalation to senior management and the board of the explosive reputational risk involved."

Sir Ralph criticised the cooperative for its failure to "join the dots" between the bacterium, infant food products, consumer sensitivities, and Fonterra's global reputation.

The report found Fonterra's external communications simply weren't up to scratch in many areas, including risk management and response, and recommended the cooperative build up its in-house communications team.

Until now, Fonterra has outsourced much of its communication work to the Baldwin Boyle Group media company.

A number of Fonterra's key stakeholders interviewed for the report were critical of the organisation's reluctance to communicate, which it described as the "Fortress Fonterra" perception.

Recommendations to board

The report made 33 recommendations to the board. Chief among them were improving its risk and crisis management procedures and amending its plant cleaning programmes.

It said the board needs to set up a risk committee and take greater responsibility for developing relationships with external stakeholders.

Chairman John Wilson promised that Fonterra will do so.

He says the findings demonstrate that the company's manufacturing processes and systems are at a "best in class" standard. He says the report endorses much of the management's operational review.

"I want to assure you all today that our board is totally committed to delivering on the recommendations and on the findings of this report."

A dairy farming leader says it's essential that Fonterra does what it says it's going to do and adopts the recommendations from the hard-hitting report.

Andrew Hoggard, Federated Farmers dairy vice-chair and a Fonterra supplier, says farmers did not expect their cooperative to make the mistakes the inquiry has revealed.

Although he believes it will be able to put in place the operational changes necessary, he has doubts about the company's ability to overcome the "fortress Fonterra" mindset.

Mr Hoggard says if Fonterra can own up to its mistakes and make them right it will emerge as a better company.

The managing director of New Zealand infant formula company Carrickmore Nutrition Chris Claridge says the botulism incident has reinforced his concern at Fonterra's planned move into the highly sensitive and closely scrutinised infant formula market in China.

He says if something goes wrong with a Fonterra branded infant formula product, New Zealand's dairy industry and its economy will be in grave danger.

[h ] Shareholders react

The Fonterra Shareholders' Council, representing its 10,500 farmer owners, says it will have a thorough look at the report before meeting Fonterra's board next month, and will subsequently share it's views with farmers.

The council's chair, Ian Brown, it agrees with the Fonterra board's decision to make the report public and says that decision, and the proposal to review Fonterra's progress in meeting the recommendations at intervals of nine and 18 months, gives the council confidence that the company is serious about improving.

Government probes

Meanwhile, there are still two Government investigations underway arising from the contamination scare and its effects.

The Primary Industries Ministry is doing a compliance review, which the Minister, Nathan Guy, says is due to be finished by the end of the year.

And Mr Guy expects an interim report from the Government's own ministerial inquiry to be released about the middle of December.