Danone has terminated its contract with Fonterra

Danone has terminated its contract with Fonterra

Danone has said that it will start legal proceedings against Fonterra in an attempt to recoup losses stemming from the New Zealand dairy giant's botched botulism recall last year.

Fonterra recalled concentrated whey powder last August over concerns some batches were contaminated with a bacteria that can cause botulism. While it transpired the recall was a false alarm, Danone, a customer of Fonterra, had been forced to recall products containing the ingredient in various markets, including China and New Zealand.

In October, Danone missed third-quarter sales expectations and lowered its full-year revenue and margin forecasts, blaming its recall of infant formula in Asia. Danone said its results were hit by the immediate impact of the recall and added the damage done to its reputation was also having a more lasting impact on sales.

Danone has estimated the recalls resulted in lost sales of EURE350m (US$476m).

The two companies had been engaged in dispute resolution talks, but have been unable to agree on the question of compensation.

In a statement today (9 January), Danone said it was terminating its supply contract with Fonterra. The company insisted the botulism recall showed "serious failings" in Fonterra'a quality standards.

"This affair illustrates serious failings on Fonterra's part in applying the quality standards required in the food industry. Danone is terminating its existing supply contract with Fonterra and making any further collaboration contingent on a commitment by its supplier to full transparency and compliance with the cutting-edge food safety procedures applied to all products supplied to Danone," the company said.

Fonterra insisted it will "vigorously defend any proceedings".