Fonterra may still face legal action from Danone over the recent whey protein concentrate (WPC) botulism scare, the New Zealand-based dairy cooperative's CEO has admitted.
Responding to concerns about the potential payment of compensation to Danone at Fonterra's annual Shareholders' Fund meeting , CEO Theo Spierings said that its recently tabled “commercial” solution “appears to be a route that is not working out.”
Fonterra informed eight customers in August, including Danone-owned Dumex and Nutricia Australia New Zealand (Nutricia ANZ), that three batches of WPC potentially contaminated with Clostridium botulinum had entered the supply chain. In response, Nutricia ANZ and Dumex recalled products in New Zealand, Cambodia, Thailand, Hong Kong, China, Malaysia, and Singapore. Tests later revealed that the bacteria found were Clostridium sporogenes – a non-toxic Clostridium strain.
It confirmed that it was involved in a “dispute resolution process” with Danone “with a view to reaching a mutually acceptable commercial outcome.”
"Not working out"
Within its Q3 results, published last month, Danone estimated that losses as a result of the product recalls would hit €350m ($470m, €580m).
Approaching this issue, one shareholder questioned whether a NZ$14m ($11.5m, €8.5m) contingent liability within Fonterra's accounts would be sufficient.
“Out of the eight affected customers, six are closed on, so it’s really stable. We are very, very close with the other nutritional company who was affected by the recall. We have a commercial solution going forward, so that definitely does not mean payments upfront,” said Spierings.
“In Danone’s case, I've heard numbers as well, I've seen numbers in letters to us, and I’ve seen different numbers in the media. We have worked on the commercial solution very, very hard for months.”
“That appears to be a route that is not working out,” he added.
“We have no liability”
Despite entering into a “dispute resolution process” regarding the WPC alert and subsequent recalls, Fonterra has always strongly denied any legal liability to Danone.
Spierings added that as a consequence, negotiations could be lengthy if its commercial solution is not accepted by Danone.
“…there are only two ways – you solve it commercially or you go legal. And if you go back to the contract then, as we have said before in the media, we have no liability in the contract," he said.
“We have basically one customer to really close on, but that could take time if it goes the legal route.”