Arbitration tribunal awards Danone damages over 2013 Fonterra recall advice

Posted by Andrea Hogan on 4th December 2017

An arbitration between Fonterra and Danone over a 2013 recall has awarded Danone the equivalent of AUD $163.5 million in damages.

As a results of the tribunal’s decision, Fonterra has downgraded its forecasted earnings per share for the 2017/18 financial year from 45-55 cents to 35-45 cents.

Fonterra said the tribunal outcome would not have any impact on forecast Farmgate milk prices.

In August 2013, New Zealand dairy co-operative, Fonterra, decided to issue precautionary recall advice to a select number of its customers who had been provided a whey protein concentrate product called WPC80. At the time, Fonterra was concerned that the product may contain bacteria that causes botulism, a rare but sometimes fatal disease.

After receiving the recall advice, Fonterra customer, Paris-based dairy company Danone, recalled hundreds of thousands of cans of baby formula across Asia.

It was however later found that there was no need to recall the WPC80 product in question.

In January 2014, Fonterra said that Danone had initiated legal proceedings against Fonterra in an effort to receive compensation for the recall notice.

The two companies later agreed to enter into the arbitration proceedings that determined late last week Fonterra should pay NZD $183 million (AUD $163.5 million) to Danone.

Reacting to the decision, Fonterra Chief Executive Officer, Theo Spierings, said Fonterra is “disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business.”

In a statement, Fonterra said both the company and the New Zealand Government conducted extensive reviews into the events and an independent follow up review had decided Fonterra’s management had acted in the best interest of consumers and the co-operative when it issued the recall advice.

“The decision to invoke a precautionary recall was based on technical information obtained from a third party, which later turned out to be incorrect,” said CEO Spierings.

“While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems.

“We operate in a fast-changing and complex industry, and will always prioritise Food Safety and Quality in our commitment to be the world’s most trusted source of dairy nutrition.

“Fonterra is in a strong financial position and is able to meet the recall costs,” he said.

Fonterra stated it is now reviewing the tribunal’s findings closely but said it recognised there was likely to be limited options for changeling the decision.

Danone said it “welcomes this arbitration decision as a guarantee that the lessons from the crisis will not be forgotten”.

“Danone considers that this arbitration underscores the merit of its legal actions against Fonterra, including to champion the highest standards of food safety across the industry,” Danone said in a statement.

“In April 2014, Fonterra had already been fined by judgement of the Wellington District Court for having breached several provisions of the New Zealand food safety regulations.

“Danone believes that food companies and their suppliers can only work together through a solid relationship based on trust, transparency and accountability. Danone will continue to build that relationship with its suppliers across the world.”


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