OPINION: Fonterra’s disclosure delays, self-serving arrogance invite consumer backlash

Fonterra’s botulism scare – released at midnight on Friday and thus avoiding the weekday news cycle and an immediate share price drop – is a potential grenade to New Zealand’s dairy exports to China.

But don’t under-estimate the local backlash to the dairy giant’s apparent disregard for proper and timely information about an important food safety issue.

The news of a dirty pipe contaminating three batches of whey product processed at its Hautapu, Waikato, factory in May 2012 – a fact discovered in March and revealed publicly at the weekend – has further knocked confidence in the country’s dairy exports.

It even has the government asking questions about the delay in the information being made public.

But why?

It was the Ministry for Primary Industries which conspired with Fonterra and other selected dairy players to keep the earlier dicyandiamide (DCD) scare from the public, conducting secret meetings for months, and allowing product to be shipped around the world, until carefully-worded press releases were released in January, sparking panic in some overseas markets.

'In the tent'
Given they were “in the tent” last time, MPI should be well-versed in Fonterra’s communications strategy.

The botulism story is still gathering pace and changing quickly, but hard questions need to be asked of Fonterra’s board about what it knew in March and why it took until July 31 to confirm its suspicions.

Knowledge is everything – it is unconscionable for a company to sit on bad news for months while potentially contaminated products, particularly those for infants, might be bought and consumed here and overseas.

Unfortunately, the outcry in New Zealand at this delay is confirmation of what the Chinese already know.

Fonterra representatives on the board of Sanlu – one of 22 Chinese milk companies to be implicated in the 2008 melamine scandal – were told of possible contamination of milk products on August 2, a month before it was made public.

Melamine-contaminated products, blamed for the death of six Chinese infants and the illness of 300,000 more, were still being made by 43% Fonterra-owned Sanlu after August 2.

Sanlu executives reportedly knew about potential problems as early as December the previous year.

Fonterra is New Zealand’s biggest company and employs thousands of people. It clearly has a huge role to play in our economy. You can only wish that it does well from the country’s perspective.

But patriotism and economic championship can only stretch so far.

Not acceptable
Fonterra’s board needs to be sent a strong message that the company’s behaviour is not acceptable.

The company has had three chances to get it right and in every case – melamine, DCD and botulism – it has been tardy and bungled its response, leading to a perception it prefers its own considerations to that of its customers.

If there is a huge sell-off when Fonterra’s Shareholders Fund opens for trading today then that is a perfectly natural reaction by investors.

Fonterra’s bean counters preparing its annual report for release in September might be worried about a potential revenue decline and possible impairments which might appear on next year’s balance sheet.

Self-serving arrogance
It is self-serving arrogance for Fonterra to sit on bad news for months, as it appears to have done, and then selectively release information to anxious consumers – especially parents of young children – leaving them to guess which products have been affected.

It’s worth noting Fonterra released a “good news story” on July 31 – an increase in the forecast milk payout  for the coming season – at a time it knew the “bad news story” was coming; a cynical softener to the bombshell it sent out two nights later, once the daily papers had been put to bed.

Put simply, the company has come out of this botulism incident looking dishonest. It makes you wonder: given how slowly it handles contamination issues, what is it keeping from the public today?

Given the size of Fonterra – with its annual supply of about 16 billion litres of milk each year – and its tight grip on the country’s dairy industry, it’s hard to avoid the ubiquitous company’s touch.

Consumers should weigh carefully the effect of any boycott on the 10,500 farmer shareholders.

But they also need to consider if the company’s behaviour is worth rewarding by buying their brands – which are, according to its website, Allowrie, Anchor, Anlene, Anmum, Bates, Bega, Boneeto, Bonlac, Boy & Cow, Calci-Yum, Chesdale, Country Goodness, Country Soft, Crofters, Dairy Dale, De Winkel, Diploma, Dos Alamos, Doyarushka, Duck River, Eon, Falcon, Farmland, Fern, Ferndale, Fernleaf, Filthy Rich, Fresh ‘n Fruity, Galaxy, Girgar, IceBar, Kapiti, Mainland, Mammoth Supply Co., Memphis Meltdown, Mountain Maid, Munchables, Next, Perfect Italiano, Philadelphia, Piako, Primo, Ratthi, Red Cow, Riverina Fresh, Ski, Slimmers Choice, Soleil, Soprole, Sunny South, Symbio Probalance, Tastee, Tip Top, ULA, Valumetric, Western Star and Zing.

dwilliams@nbr.co.nz

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