Fonterra pays NZ$183 million to Danone for recall

An arbitration tribunal has ruled that New Zealand dairy company, Fonterra, must pay a total of NZ$183 million to Danone after a contamination scare in 2013.

Four years ago, Fonterra received false information from a third party which suggested its WPC80 ingredient (whey protein) may contain botulism, forcing the company to carry out a precautionary recall.

French food giant Danone had to recall 67,000 cans of baby formula in New Zealand alone as it contained WPC80, leading to the company demanding compensation for lost earnings and damages. The arbitration panel’s decision to support Danone's claim for compensation was disappointing, according to Fonterra’s CEO, Theo Spierings.

“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,” he said.

It caused Fonterra to cut its 2017/18 forecast earnings per share range from 45 to 55 NZ cents down to 35 to 45 NZ cents. But despite reviewing the financial implications of the arbitration, Spierings suggested “Fonterra is in a strong financial position and is able to meet the recall costs,” and there would be no impact on the forecast Farmgate Milk Price.

There did not seem to be a significant impact on the company following the decision. Although Fonterra called for a temporary halt on trading its shares on the day of the announcement, once this was lifted shares climbed 0.63%.

Spierings said another positive outcome of the decision was that it helped the company learn from their mistakes, and encouraged it to work on these aspects in the future.

“While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems.

“We operate in a fast-changing and complex industry, and will always prioritise Food Safety and Quality in our commitment to be the world’s most trusted source of dairy nutrition.”

Although Fonterra is reviewing the tribunal’s findings, it is very unlikely it would be able to challenge the decision.

Danone said in a statement the outcome should ensure “the lessons from the crisis will not be forgotten.”