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Fonterra budgets NZ$11m for Danone WPC recall lawsuit

By Mark Astley+

26-Mar-2014

Fonterra budgets NZ$11m for Danone WPC recall lawsuit

Fonterra has budgeted for a payout of just NZ$11m ($9.5m, €6.85m) in its ongoing legal battle with Danone over last year’s whey protein concentrate (WPC) botulism scare.

In its half year report published earlier today, New Zealand-based dairy giant Fonterra said that it cautiously set aside NZ$11m to cover compensation it could be ordered to pay to Danone.

In January 2014, Danone announced that it was terminating its existing supply contract with Fonterra and was planning to sue the firm over the August 2013 WPC Clostridium botulinum contamination scare that led it to pull products from shelves across New Zealand and Asia.

Today's figure, according to Fonterra, represents “the maximum contractual liability to Danone.”

It represents, however, a decrease on the NZ$14m ($12m, €8.7m) provision announced by Fonterra in December 2013, and falls short of the €370m ($510m, NZ$593m) Danone claims to have lost in sales as a result of the WPC incident.

Outcome of proceedings?

“Fonterra is working through the details of Danone’s claims,” said Fonterra’s half year report.

“Based on current information available and the claims made to date, Fonterra will vigorously defend its position."

“Uncertainty exists regarding the outcome of the proceedings. Fonterra has provided $11m, which represents the maximum contractual liability to Danone," the report added.

In response to Fonterra August 2013 alert, Dumex and Nutricia Australia New Zealand (Nutricia ANZ), both wholly-owned subsidiaries of Danone, immediately ordered the recall of potentially contaminated products in New Zealand, Cambodia, Thailand, China, Hong Kong, Malaysia and Singapore.

Tests later revealed that the bacteria found in the three affected WPC batches were Clostridium sporogenes, a non-toxic Clostridium strain.

In October 2013, Fonterra confirmed that it had entered into a “dispute resolution process” with Danone in the hope of “reaching a mutually acceptable commercial outcome.”

The failure of these talks was confirmed in January 2014, when Danone announced it was taking Fonterra to court.

Of the customers affected by the WPC botulism scare, all except Danone have accepted the “commercial solution” tabled by Fonterra.