Fonterra report highlights areas in need of improvement

Fonterra report highlights areas in need of improvement

New Zealand dairy giant Fonterra was "let down" by a number of "shortcomings" resulting in last month's whey powder recall, an independent investigation has concluded.

Fonterra's board commissioned an independent inquiry to assess the events leading up to the WCP80 recall, which was launched after tests suggested the ingredient was contaminated with a bacteria that can cause botulism.

While it transpired the scare was a false alarm, Fonterra recalled the ingredient which had been supplied to customers including Danone, Coca Cola Co. and Wahaha across Asia Pacific. 

The probe was led by a legal team from Chapman Tripp, co-ordinated by senior partner Jack Hodder, QC. It concluded there was "insufficient senior oversight" of key decisions, including the move to use testing company AgResearch, which returned the initial false result. Fonterra was also unable to "promptly and definitively" track the affected WPC80 batches.

The company also failed to recognise the reputational risk that the recall represented, the report suggested. "Fonterra's crisis management planning, including the external communications aspects, was inadequate for an event of this kind and scale."

Recommendations included the call for a review of quality, safety and testing protocol; strengthened risk management and crisis management; and plant cleaning procedures to be amended.

The investigators also spoke to the company's corporate culture, which it said was marked by a "fortress Fonterra" perception held by a majority of stakeholders.

"Our findings and recommendations do not indicate any fundamental problems within Fonterra. That is not our conclusion," Hodder said announcing the findings today (29 October). "They do point to a range of improvements Fonterra can make to become an even better company."

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."

Fonterra said it is establishing a board risk committee to oversee risk management.

Farming group Federated Farmers of New Zealand welcomed the move when it emphasised that the "biggest issue" the report uncovered was cultural.

"We need the manufacturing process, product testing and quality assurance to all be drier than the milk powder we produce. We need global best practice product tracing systems to quickly locate product in hours and not days and this all needs people to comprehend what risk management is. We are going to see change start from the very top with the new board risk committee. It is deliberately split out from audit committee to improve board oversight of reputational risk issues," Andrew Hoggard, Federated Farmers dairy vice-chairperson, said. "You have the impression this is going to be a very different Fonterra and for the better to."

The recall prompted a number of consumer product recalls in Asia. One customer, Danone, said the incident was having a significant impact on sales in China, when it lowered its full-year outlook and reported a third-quarter sales miss earlier this month.

Fonterra and Danone are in a "dispute resolution process" over the affair, with the French group demanding compensation for the lost sales.