Fonterra botulism scare caused 'big consequences'

Fonterra has "suffered significant reputational consequences" from the scare over botulism contamination in some of its dairy production, stockmarket watchdogs said, as they fined it for delays in coming clean to investors.

New Zealand-based Fonterra, the world's biggest milk exporter, agreed with New Zealand Market Disciplinary Tribunal to pay NZ$150,000, plus costs, to settle a case brought over the co-operative's handling of last year's alert over botulism tainting in whey protein.

The NZX exchange's own investigators found that Fonterra, which is listed on the market through its Fonterra Shareholders Fund, had broken listing rules by waiting for more than two days to reveal the discovery on July 31 of suspected contamination by the bacterium behind botulism poisoning.

Fonterra breached obligations by "failing to release material information to NZX immediately after coming into possession of that information", NZX Regulation said.

'Significant reputational consequences'

The settlement adds to the cost to Fonterra of the botulism scare which turned out to be a false alarm but prompted the withdrawal of product by the company and its customers, including Danone, which is suing the co-operative.

Indeed, the payment demanded by the watchdogs may have been higher were it not for the damage Fonterra has already suffered, which the tribunal termed a "mitigating factor".

"Fonterra has already suffered significant reputational consequences as a result of the events that are the subject of this announcement," the tribunal said.

It noted as an "aggravating" factor Fonterra's status as New Zealand's largest company, whose fortunes are viewed as holding a big influence over factors such a national GDP and the strength of the Kiwi dollar.

"As a large and prominent company, Fonterra has an obligation to uphold high public standards and any breaches of continuous disclosure obligations have the potential to affect a significant number of people."

The amount of the settlement is reported to be the highest ever demanded by the tribunal, an independent body which looks into for cases referred by the NZX, and has powers to impose penalties.

'Significant changes'

Fonterra has not accepted the ruling, but said it had agreed to acknowledge the finding "as part of a full and final settlement".

The group added that, since the contamination scare, it had "made significant changes to ensure improved identification, management and escalation of emerging risks across the co-operative, with a particular focus on food safety and quality".

"Fonterra remains committed to fully complying with the rules governing the Fonterra Shareholders' Market and the NZX listing rules," Mike Cronin, the group's director governance and legal, said.

The tribunal said that was "concerning and disappointing" both that the case had been raised, and that "Fonterra has not accepted that a breach occurred" of listing rules.

'Lack of internal escalation'

It also said that "Fonterra could have managed its compliance with continuous disclosure obligations better in this case".

The tribunal documents show that Fonterra, after being informed of a "strongly positive result for botulinum toxin at about midday on July 31, waited until after the close of markets on Friday August 2 to inform investors.

"The issue appears to have arisen in part from a lack of internal escalation by senior management at Fonterra."

The co-operative has since the scare taken steps including appointing a director of food safety, setting up an incident management team to oversee "emerging issues", and introduced food quality commitments into senior executives' contracts.

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