New Zealand's Fonterra Loses Danone Supply Contract, Slapped with Court Action

By @ibtimesau on
A shepherd milks a sheep at a grazing ground
A shepherd milks a sheep at a grazing ground on a cold winter morning on the outskirts of New Delhi January 7, 2014. Reuters/Anindito Mukherjee

New Zealand's Fonterra Co-operative Group has lost its supply contract with French food company Danone over the milk powder contamination scare in late 2013. Danone will likewise slap appropriate legal action against the Kiwi company for NZ$492.9 million compensation.

In August 2013, Fonterra warned some milk powders may have contained botulism-causing bacteria. It later issued a product recall of its products.

Eliza Newton, Danone spokeswoman, said the recall gave a significant impact in terms of brand reputation.

"This affair caused serious damage to the Danone business... will be seeking a fair compensation for that," she said.

On Thursday, the French company files its papers in the High Court in Auckland. It has already served arbitration papers to be heard in Singapore. The world's largest yoghurt maker said it lost about 350 million euros ($476 million) in sales following the recall of its Dumex and Karicare infant formula products in 2013.

Fonterra claimed the milk powder was contaminated with a dangerous form of the clostridium bacteria. The recalls were made in nine countries, including China. After a series of laboratory tests, whey protein contamination was eventually cleared.

On the other hand, Fonterra, the world's biggest dairy exporter, said it will defend to the hilt any allegations to be laid down by the French company.

 "Fonterra stands by its track record of having world-class food safety and quality standards, quality systems, and robust testing regimes across all its manufacturing facilities," the Auckland-based company said in a statement.

"Fonterra has been in ongoing commercial discussions with Danone and is disappointed that they have resulted in legal action."

However, beyond the figures, Danone said the milk powder contamination false alarm resulted to a ''significant drop off'' in public trust for its brand.

"It's hard to know at this point how much of a claim by Danone is real and how much is negotiating tactics," Matt Goodson, managing director at Salt Funds Management, said.

Units in the Fonterra Shareholders' Fund dropped 2.1 per cent to $5.74 immediately upon the pronouncement, the AAP reported.


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