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.
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
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.
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
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
"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'