Fonterra failed to see 'explosive reputational risk'

The botulism scare had its origins at Fonterra's Hautapu plant in Waikato. Photo / Christine Cornege

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An independent inquiry into Fonterra's botulism debacle has found the dairy giant failed to recognise the "explosive reputational risk" involved in the scare.

The inquiry - which was commissioned by the dairy company's board - today released its findings and recommendations at a media briefing in Auckland.

A list of "things that went wrong" included the "belated recognition (and delayed escalation to senior management and the board) of the explosive reputational risk involved".

Fonterra had failed to "join the dots" between botulism, infant food products, consumer sensitivities, and Fonterra's global reputation, the report said.

A number of factors, including a lack of senior oversight of crucial decisions and problems with tracing potentially affected product, had contributed to the event in August this year.

Fonterra's crisis management planning, including the external communications aspects, was inadequate for a crisis of this kind and scale, the report said.

"Fonterra management of the crisis in the critical early period, including the external communications aspects, was not well executed."

There was "some lack of alignment" between the Government and Fonterra during the first "critical fortnight" of the scare.

Jack Hodder, who led the inquiry team, said there were shortcomings in a number of areas which converged to create this "significant issue".

"Our findings and recommendations do not indicate any fundamental problems within Fonterra. That is not our conclusion," Hodder said.

"They do point to a range of improvements Fonterra can make to become an even better company."

The inquiry team, which was led by a legal team from Chapman Tripp and two independent experts, has made 33 recommendations for Fonterra.

"Changes are not optional....They are vital," said inquiry chairman Sir Ralph Norris today.

Fonterra chairman John Wilson said the inquiry gave him confidence that the company could recover from the scare.

"It (the inquiry report) really focuses the mind," Wilson said.

"Much of the recommended change is already underway, or has already been identified as needing to be changed."

The Fonterra Shareholders' Council, which represents the co-operative's 10,500 farmer shareholders, welcomed today's report.

"In the short term the Council will review the report thoroughly and meet with the Fonterra Board in November to discuss it further. Following this we will share our view of the report with our Farmer Shareholders," said chairman Ian Brown.

The actions required of Fonterra as recommended in the report seemed prudent, said Brown.

Dairy products, including infant formula, were withdrawn in more than seven countries in August after Fonterra suspected that 38 tonnes of whey protein had been contaminated with a botulism-causing bacterium.

Further testing showed it was a false alarm and the bacterium present in the whey protein was harmless.

The contamination debacle strained relations with China, which imported $3 billion worth of Kiwi dairy products in the year to June.

French-owned New Zealand infant formula brand Karicare was also forced to recall 67,000 cans of product in this country.

Fonterra announced the findings of its internal, operational review of the botulism scare in September, which revealed reprocessing after plastic was found in whey protein at its Hautapu plant in the Waikato led to the contamination event.

At that time Fonterra chief executive Theo Spierings also said the crisis hadn't been "escalated" fast enough.

The results of a Government inquiry into the scare are yet to be released.