WELLINGTON (Reuters) - The chief executive of New Zealand’s Fonterra said his future was up to the board of the world’s biggest dairy exporter after human error resulted in some of its products being contaminated and shipped around the world.
Theo Spierings, a Dutchman and dairy industry veteran, sought on Wednesday to reassure customers and worried parents who feed their infants with formula milk made from Fonterra’s whey protein concentrate, saying all tainted stocks had been taken out of the market and there was now little or no risk to consumers.
New Zealand, which depends on the dairy industry for a quarter of its total exports, has been gripped by worries that a raft of recalls for infant formula in China, a major market, and other countries could snowball into a slump in demand or even bans for other dairy products.
Fonterra said at the weekend it had discovered whey protein products that contained a bacteria that can cause botulism. It said previously its tests had found the contamination in a dirty pipe at one of its plants. No illnesses have been reported due to the contamination.
Spierings, who rushed to China at the weekend to apologize for the scare and try to win back customer confidence, said the situation there was stable. “I said at a press conference in China that I would not leave before the situation was stable from the perspective of markets, consumers, customers and global authorities,” he told reporters at the company’s headquarters in Auckland. “We had all those discussions yesterday, and I decided late last night that the situation is stable.”
Asked if he would resign over the company’s handling of the scare, Spierings, who joined Fonterra in 2011, said: “It’s not up to me to answer, that’s up to the board.”
He said affected customers, including The Coca-Cola Co, Danone SA and China’s Wahaha, had been focused on removing potentially contaminated products from shelves, rather than on compensation.
“There has been not a single discussion with me and their top teams on money so far. But there will be these discussions later on,” Spierings said.
Fonterra’s plans to expand in China with more farms, an ultra heat-treated milk plant and branded baby formula remained on track, he added.
Units in Fonterra’s Shareholders Fund, which offer outside investors exposure to the cooperative’s farmer shareholder dividends, rose 1.15 percent to NZ$7.03, and have erased almost all of their losses since news of the scare first broke.
Questions remained over Fonterra’s promptness in disclosing the contamination issue and its dealings with the Ministry of Primary Industries (MPI).
“There’s definitely some time there that we’re not happy with - how long it took to get to work with the MPI, to give them some information, so this is going to be part of our review,” said Gary Romano, Fonterra’s managing director of New Zealand Milk Products.
The MPI, which has dispatched people to work in Fonterra offices to oversee the crisis response, said it was asking questions about the reporting timeline and Fonterra’s processes.
Finance Minister Bill English told parliament earlier that the scare did not appear to have had much impact on the economy, but would need careful handling if Fonterra and New Zealand were to continue to benefit from high commodity prices.
“The indications are that, providing the issue of the potential contamination is handled effectively and transparently, the direct impact on the New Zealand economy can be contained,” he said.
But Trade Minister Tim Groser said New Zealand had a lot of work to do to regain trust among global customers. “The market is being very measured in its reaction, in the same way that Chinese authorities have been very measured in their actions,” he told Radio New Zealand. “Having said all those positives, let’s agree that we’re not out of the woods here, this problem is not now settled in any sense of the word.”
David Mahon, Managing Director of Mahon China Investment Management, a China-based New Zealand consultancy, said it could take “many weeks and months for New Zealand to repair the perception of the integrity of its clean, green image - it’s claim of being ‘100 percent pure’.”
“Perhaps we can re-brand ourselves as being ‘99 percent pure’,” he told Reuters Television.
At Fonterra’s first international auction of its dairy products since news of the contamination - which didn’t include those products connected with the scare - prices slipped 2.4 percent, but stayed near their recent high levels on the back of strong demand from growing middle classes in emerging economies.
The fortnightly auction, the biggest wholesale marketplace for milk powders and dairy produce, saw a near doubling in volumes made available.
“It does not seem that the contamination issue is evolving into a serious negative for the wider economy,” Westpac economist Nathan Penny said in a note to clients. “The world is still paying high prices for most New Zealand products.”
U.S. dairy futures fell on Tuesday, reversing recent gains, as traders unwound speculative bets that China may shun some dairy products from New Zealand, and instead buy from other countries, including the United States.
One country hoping to gain is India, the world’s biggest milk producer, which sees its skimmed milk powder exports jumping more than 50 percent in 2013/14 helped by a weak rupee and Chinese restrictions on some New Zealand products.
“We don’t have such problems. This is a very good opportunity for India. Definitely our exports will rise this year and in the coming years,” R.S. Sodhi, managing director of the Gujarat Milk Marketing Co-operative Federation, India’s leading milk product exporter, told Reuters.
India traditionally keeps most of its milk products at home to meet rising domestic consumption and as the government tries to keep a lid on local prices. Skimmed milk powder exports this year are likely to increase to 100,000 tons, Sodhi said.
Separately, Fonterra said it was fined NZ$900,000 ($705,000) by China’s top economic planning agency after a review of pricing practices for consumer dairy products in mainland China. Five other companies were also penalized.
($1 = 1.2663 New Zealand dollars)
Additional reporting by Max Duncan in Shanghai and Rajendra Jadhav in Mumbai; Editing by Ian Geoghegan