2 Dec 2013

Fonterra and Danone fail to reach solution

12:44 pm on 2 December 2013

Fonterra chief executive Theo Spierings says months of talks with Danone over losses from the whey protein contamination scare have failed to reach a commercial solution, suggesting the issue may end up in the courts.

Danone put the cost of the Fonterra product recall at 350 million euros when it announced its third-quarter results last month.

Mr Spierings was questioned on Monday at the Fonterra Shareholders' Fund annual meeting in Auckland about whether a $14 million contingent liability in Fonterra's accounts would be sufficient.

"I have heard the numbers, seen other numbers in letters to us," he said. "We've worked on a commercial solution very, very hard for months" such as agreeing to security of supply.

"That appears to be a route that is not working out."

Still, should Fonterra's contract with Danone be tested in the courts, it will show "we have no liability in the contract".

Last month, Danone cut its sales and profitability targets for 2013, citing the recall.

Of eight customers affected by the recall, AAP reports Fonterra has agreed a commercial outcome with all of them except Danone.

"We have one customer to close out but that could take time if it goes the legal route," Mr Spierings said.

AAP reports he also said that last summer's drought sabotaged the company's target for earnings growth and that the key was to shift volumes of product into high-value categories.

One unitholder linked the price paid to farmers to the lacklustre performance of the units on the NZX, which last traded at $6.48 from as high as $8.09 in late May.

Fund chairman John Shewan said three key influences on the unit price in recent months had been the effect of the drought, the impact of high milk prices paid to farmers and the whey protein recall.

A higher than average number of new floats on the NZX had also had a general effect on the market, he said.