Fonterra down the track in boosting food safety after last year's recall

Fonterra Co-operative Group [NZX: FCG], the world's biggest dairy exporter, is on track in lifting the quality of its food safety processes, nine months after an independent review into its handling of last year's false alarm food scare.

The Auckland-based company has completed audits of 75 percent of its plants globally and has embarked on necessary improvements and maintenance where needed, put in place protocols to engage external scientific and diagnostic resources and written food and safety quality into all senior management employment contracts, it said in a statement. It's also set up an incident management team, created a food safety and quality council, and appointed Greg McCullough as head of food safety and quality.

The update marks the first nine-month review since a board-ordered independent report, with another review scheduled in nine months.

"The committee was unanimous in its view that Fonterra management has brought a clear focus to rectifying the areas of weakness identified last year during the inquiry," independent inquiry committee chair and Fonterra director Ralph Norris said. "It was particularly pleasing to see evidence of the holistic and disciplined approach being taken to implementing changes that will further strengthen the cooperative."

The progress zeroes in on the report's top operational recommendations to ensure Fonterra's food quality and safety specifications and testing were reviewed to ensure they were 'best in class' and consistent with the most rigorous needs of customers, and that risk and crisis management processes were bolstered, something Norris said at the time of the report would include the creation of a separate board committee focusing on risk.

The update doesn't touch on the report's recommendation to address the perception of a "fortress" mentality at Fonterra, where a "material proportion" of stakeholders saw a lack of responsiveness by the company when the botulism scare unfolded.

Last August, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria. The whey protein was ultimately cleared as a false alarm. Fonterra cut deals with seven of the eight customers affected and recognised a contingent liability of just $14 million for the recall in its accounts.

French food giant Danone is suing Fonterra over the food scare, claiming damages for the costs of recall, loss of profits, and loss of business and reputation, alleging lost sales of 350 million euros and projecting cost impacts of 280 million euros.

The scare did little to hose down demand for Fonterra's products, and the dairy company last week announced plans to buy a 20 percent stake in China's Beingmate Baby & Child Food, and set up a joint venture with the Chinese firm to supply infant formula into the world's most populous nation.

Units in the Fonterra Shareholders' Fund, which gives investors exposure to Fonterra's dividend stream, were unchanged at $6.15 today, and have gained 6 percent this year.

(BusinessDesk)