(Updates with Spierings comment on compensation claims in 10th paragraph.)
Sept. 4 (Bloomberg) -- New Zealand’s Fonterra Cooperative Group Ltd, the world’s biggest dairy exporter, will appoint a food safety director and strengthen product recall systems after a contamination scare dented the company’s reputation in China.
“We are doing everything in our power to maintain absolute confidence in our processes and products, and to strengthen New Zealand’s already strong food safety and quality system,” Chief Executive Officer Theo Spierings said on a conference call today. While the scare proved to be a false alarm, “we are not going to miss this important opportunity to step up across our entire business,” he said.
Fonterra said in early August that a dirty pipe at a processing plant may have contaminated a whey protein used in baby formula with a botulism-causing bacteria. While government testing subsequently found the contamination didn’t pose a food safety risk, Fonterra undertook a review of its handling of the scare, which prompted a global recall and jeopardized New Zealand’s trade links with China.
The company said today that a lapse in information sharing led to delays in testing the suspect protein, and that the issue should have been escalated to CEO-level earlier. A major upgrade of computer systems at some Fonterra sites immediately prior to the recall also resulted in product tracing taking longer than it should have, it said.
To prevent such an incident happening again, Fonterra said it will increase its focus on quality and safety, improve transparency and information flows, strengthen product recall and supply management systems, and create a new role of Group Director of Food Safety and Quality.
The crisis “was not the result of one event,” Spierings said. “This was the result of a number of separate and unrelated events occurring in an unforeseen sequence.”
Fonterra Group Director of Strategy, Maury Leyland, said the contamination occurred in May 2012 when staff reprocessed product after noticing that a piece of plastic had dropped into a batch. This was an unusual process for the plant concerned, and involved pipes that weren’t routinely used and weren’t adequately cleaned, she said on the conference call.
Standard testing by the company identified a bacterial contamination in March this year and, after further testing failed to rule out a botulism-causing strain, it asked government-owned AgResearch to investigate further. Those results came back positive on July 31 and Spierings was informed the following day. Fonterra went public on Aug. 3.
Subsequent tests by the Ministry for Primary Industries reversed those findings in late August.
Spierings said he’s talking to affected customers and that some will probably request compensation from Fonterra, “but we’re not at that stage yet and we’ve not received anything from our customers yet.”
Nutricia, part of the Danone Group, was forced to recall some of its Karicare infant formula products in New Zealand.
China, New Zealand’s biggest dairy customer, bought NZ$3 billion ($2.3 billion) worth of dairy products in the year through June.
New Zealand Foreign Minister Murray McCully visited China last month to smooth tensions and Spierings also apologized for the scare, which prompted the resignation of Fonterra executive Gary Romano.
--Editors: Tracy Withers, Andrew Hobbs