Fonterra cuts earnings forecast after order to pay $183m to French food giant over botulism scare

Dairy giant Fonterra has cut its earnings forecast in response to being ordered to pay French food giant Danone $183 million over the 2013 botulism scare.

Fonterra says the decision by the arbitration tribunal in Singapore has no impact on the forecast Farmgate Milk Price.

The company says it has assessed the potential financial implications of the decision and made a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents.

The botulism scare stemmed from Fonterra quarantining several batches of whey protein concentrate after there were concerns they could have been contaminated with clostridium bacteria.

Danone, then a buyer of Fonterra products, began a large-scale recall which they said cost about $610m, and ceased doing business with Fonterra.

It was later confirmed there had been no food safety risk to the public. 

Fonterra is in a strong financial position and is able to meet the recall costs - Fonterra CEO Theo Spierings

The French company had sought damages from Fonterra of up to $1.09 billion.

Fonterra's CEO, Theo Spierings, said the company 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".

"The decision to invoke a precautionary recall was based on technical information obtained from a third party, which later turned out to be incorrect." he said in a statement.

"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," Mr Spierings said. 

"Fonterra is in a strong financial position and is able to meet the recall costs," he added. 

Danone said in a statement it welcome the Singapore arbitration decision, saying it "underscores the merit of its legal actions against Fonterra".

"Danone believes that food companies and their suppliers can only work together through a solid relationship based on trust, transparency and accountability," the statement read.

Fonterra today requested a temporary trading halt ahead of the tribunal decision.

Botulism is a serious and potentially fatal bacterial infection caused by toxins produced by clostridium.

Duncan Coull, chairman of the Fonterra Shareholders' Council, said the arbitration decision has made this a tough day for the co-op and its farmer owners who will ultimately bear the cost, a fact he says is not lost on the Fonterra business.

"Our Co-op has made significant strides since the 2013 incident in terms of strengthening its operational processes, culture, and governance - as per the independent review process recommendations - and embedding them into our Co-op's functions and framework," he said.

Mr Coull said the council was also confident the co-op acted with integrity when it issued the precautionary recall.

CEO Theo Spierings says Fonterra can afford it, and it's unlikely it can challenge the decision over the Botulism scare. Source: 1 NEWS