Comment: E.Coli recall could sour Fonterra's reputation further
Fonterra faces fresh recall
Food recalls are part of the industry in which we operate. Even companies with best-in-class safety and quality standards can, from time to time, be forced to recall product. However, when New Zealand dairy giant Fonterra issued an E.Coli recall earlier this week, echoes of last year's botulism scare jumped to mind. With this fresh recall coming hot on the heels of such as massive blow, Katy Askew suggests Fonterra could find its reputation tarnished further still.
Fonterra issued a recall of 8,700 bottles of fresh cream sold under its Anchor and Pams brands in New Zealand after tests carried out by the company indicated the product could be contaminated with E.Coli.
Speaking to Radio NZ shortly after the announcement, Fonterra Brands MD Peter McClure emphasised that such issues are "very rare". This is the first time in 18 years that tests have linked Fonterra products to E.Coli contamination, he said.
However, McClure conceded that, while the company would not want a recall of this sort ever, "now is not a good time for us".
If they gave awards for understatement, McClure could be a serious contender.
Last year, Fonterra took a monumental reputational hit when it initiated a massive recall of its whey concentrate powder (WCP80) ingredient over concerns it was contaminated with a bacteria that can cause botulism.
While it transpired that the recall was a false alarm, it nevertheless sparked further consumer-facing recalls from the likes of Danone and Coca-Cola Co. The incident did Fonterra few favours in the eyes of its food industry customers and Danone confirmed last week it has dropped Fonterra as a supplier. The French firm also plans to launch legal action against Fonterra to recoup losses. Danone insisted that the affair illustrated "serious failings" on Fonterra's part in applying "quality standards required in the food industry".
The recall also dented the reputation of the New Zealand dairy industry - particularly in highly sensitive but key Asian markets such as China.
The Chinese baby formula market alone is worth about NZ$2.7bn a year to New Zealand. And it is an area where consumers are highly-concerned over food safety issues given a number of high profile recalls and the 2008 melamine scare, which resulted in the deaths of six babies. Reputation is everything in this sector and Fonterra in particular - and New Zealand dairy products in general - emerged from the scare tarnished.
Following the botulism controversy, both Fonterra and the New Zealand government launched investigations into the event.
The independent probe made a number of recommendations, including the call for a review of quality, safety and testing protocol; strengthened risk management and crisis management; and plant cleaning procedures to be amended.
Responding to the report, Fonterra CEO Theo Spierings said the findings were consistent with action the co-operative is already taking to address operational issues that contributed to the recall.
"The independent report findings and recommendations are consistent with our own approach to strengthening the cooperative and renewing trust and confidence among our many and varied stakeholders. For example, we have recently tightened our already rigorous food safety and quality controls," he said. "We have learned lessons from what has been a difficult experience, subsequently found to be a false alarm."
These lessons have apparently been applied to this week's the E.Coli contamination recall. Indeed, Fonterra farming group Federated Farmers of New Zealand said that this latest recall of fresh cream showed how far the company has come since the botulism scare, insisting that the firm's "quality assurance systems work".
"While the timing is far from ideal given what went on last year, this is a voluntary recall initiated by Fonterra's own testing," said Willy Leferink, Federated Farmers Dairy chairperson. "I hope it shows our consumers that a company owned by thousands of Kiwi farmers does put food safety first. It should also tell our consumers that when a Fonterra owned brand is on the shelf, someone back at Fonterra is testing it to ensure it remains safe to consume."
However, the reaction of the international media will be key to determining the impact that this latest recall will have on Fonterra's reputation.
The story - which is a relatively minor recall limited to product sold in New Zealand - has been reported in globally in various countries from the UK, to China and the US.
Chinese regulators have also become involved. China's General Administration of Quality Supervision, Inspection and Quarantine warned consumers not to consume Fonterra cream that may have been sent to them in the mail - even though the short shelf life, chilled product was not directly on sale in the country.
Given this level of response - and the unfortunate timing of the recall - the fact that Fonterra acted quickly and decisively on the back of results from its own testing regime might not be enough to protect the group from further damage to its reputation for product safety.
Fonterra is ranked in the top 21 among dairy players. However, this is due for the most part to its strong presence in Australasia. The company is looking to diversify, investing in a China-based dair...
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