COMMENT: Saving New Zealand’s brand after the Fonterra affair

The Fonterra infant formula contamination scare is a crisis for Fonterra and for New Zealand’s global brand.

China has suspended almost all New Zealand milk powder imports. Sri Lanka has followed suit and other countries are considering doing the same. At one stage, Russia banned all New Zealand milk product imports.

No need to say more about the serious nature of the crisis and what it means for the country’s exports.

While investigations are underway, consumers are asking for answers – and it’s important for Fonterra to deliver these in a way that minimises public panic and hysteria.

We have seen in the past how easily a small negative incident can end up being a global crisis. For instance, in 1999, Coca Cola’s forced recall of many millions of cans and bottles following a health scare in Belgium and other countries in Europe is now thought to be a case of mass hysteria.

We can only hope that this will prove to be the case for Fonterra as well.

Given that the nature of the whey contamination it’s important that Fonterra has focused on reassuring parents, who are naturally worried about the safety of their children.

An unfortunate side-effect of this scare is that consumers are now wary of Fonterra’s other products, which are supposedly safe.

'Guilt by association'
Furthermore, overseas consumers may apply “guilt by association” to other New Zealand-origin dairy products and brands with no direct supply relationships with Fonterra _ even going so far as to stop buying other products from New Zealand and deciding not to travel here.

A research team comprising myself, Associate Professor John Knight, of the University of Otago, Professor Hongxia Zhang, of Peking University in China, conducted research on the 2008 Chinese milk contamination crisis, which also involved Fonterra, and found evidence of the guilt by association effect as the result of consumer heuristic judgments.

With such high uncertainty, emotional responses of consumers are to be expected and there is little anyone can do to control it. Our research on the 2008 crisis has led us to provide some insights into what is needed to weather this kind of storm. 

It is clear that providing reassurance needs to be the number one priority. Important information needs to be provided to the Ministry of Foreign Affairs and Trade as leverage for negotiating with countries such as China and Sri Lanka to lift any bans on New Zealand milk products.

Fonterra’s customers need clear information about which of the products they supply are contaminated and which are not, so they know where they stand.

It is also important that Fonterra works closely with the Ministry for Primary Industries to investigate the potential risks of any other contamination in the sourcing and manufacturing process, and regain their full confidence.

Once this process is completed, Fonterra and the ministry need to shout it, together, from the rooftops.

Frustration and panic
Consumers’ emotional responses are strongly linked to the perceived severity of the issue. If Fonterra has engaged independent food safety specialists and agencies to investigate, and they find that the potential severity of the contamination is low, this should be made public to reduce frustration and panic.

Fonterra has certainly taken a hit on its credibility and reputation. This is an opportunity for other New Zealand dairy companies to speak out about their excellent safety standards, to offset the negative effect on the whole dairy industry.

Sending out positive messages to the public and the market would indicate to consumers that this crisis is an isolated event.

In China, some self-organised social media groups have been defending the reputation of foreign infant formula brands despite the scare, and have praised the actions of Fonterra and Nutricia for self-disclosing the contamination of the whey protein (by Fonterra) and making voluntary public recalls of their products to protect consumers.

More action needs to be taken in New Zealand to encourage this kind of response.

While only time will tell whether Fonterra and the dairy industry of New Zealand adopt the crisis response strategies mentioned above, the crisis is certainly a lesson the New Zealand business community should learn as a whole.

It also offers researchers in marketing and crisis management an opportunity to find new insights into crisis management in today’s largely integrated, yet still disconnected, supply chain that undoubtedly threatens any global and export-oriented business.

Dr Hongzhi Gao is senior lecturer of international business at Victoria Business School at Victoria University and senior research fellow at the New Zealand Contemporary China Research Centre

hongzhi.gao@vuw.ac.nz