Parmalat crisis deepens

- Last updated on GMT

Related tags: Parmalat, Italy

As the scandal surrounding Italy's food and giant Parmalat deepens,
Berlusconi's government rustles up emergency measures to tackle
'Europe's Enron', with a strategy to save jobs and pay the
suppliers.

Investigations into alleged fraud at Parmalat, which has food operations around the world, began after the 19 December revelation of a €3.95 billion hole in the company accounts. Parmalat said it had the money temporarily marooned in the Cayman Islands, since deemed by a US bank to be non-existent.

At the end of December the company was declared insolvent and its founder and former chief Calisto Tanzi arrested in a criminal probe into the billions of euros of missing money.

Employing more than 36,200 people in 146 plants on five continents news of the company's collapse has left employees, and suppliers, anxious about their future.

According to Italian media reports, some farmers - Parmalat buys 8 per cent of Italy's milk - held rallies to demand aid, blocking a major northern motorway and setting cows loose on city streets.

But the government stepped in at the end of December with a bail out measure designed to soothe the crisis. The prime minister Silvio Berlusconi and his cabinet agreed on a new framework aimed at saving Parmalat.

Under the emergency government decree, the embattled Italian firm has filed for protection from creditors and the company is now under the administration of Enrico Bondi, who will serve as the commissioner - equivalent to chairman and chief executive - of the dairy company and who will restructure the firm.

Announcing the measure, Italian industry minister Antonio Marzano said that the goal was not to liquidate but to save Parmalat. "The action has the objective of rescuing jobs, not the stockholders or managers,"​ he said.

The commissioner will have the power to sell assets but only with the approval of the industry ministry and the agriculture ministry, he added.

At the same time the government said it would ask the European Union Commission to grant "crisis" status to the nation's dairy industry - a move aimed at injecting some fresh cash into the sector.

The Commission has yet to respond. Part of Europe's €99bn Common Agriculture Policy (CAP), in 2001 the EU supported its dairy sector to the tune of €16bn (40 per cent of the value of EU dairy production), according to the OECD.

The far-reaching impact of Parmalat's collapse is starting to be felt in Brazil where the firm is the the second-biggest buyer of fresh milk, buying one-quarter of all milk produced there. According to Brazilian media reports, dairy farmers in Brazil have had crisis talks with the government and agriculture minister Roberto Rodrigues, over fears that the Parmalat scandal could cause milk prices to plunge.

And in Australia, News Interactive Australia reports that accounts filed at the Australian Securities and Investments Commission indicate that the company's business in Australia is struggling.

According to the accounts, accumulated losses at the group whose key brands there include Pauls, REV, Skinny Milk and Trim now stand at $148.2 million since Parmalat entered the Australian market after launching a successful $436 million takeover bid for Pauls in 1998.

Worringly for suppliers, continues the report, the accounts also show the company's level of indebtedness to the parent company increased in 2002. It owed the Italian parent $217.6 million in 2002 up from $189.1 million in 2001.

A new twist in the saga occurred yesterday with the Italian media reporting that lawyers representing Parmalat bondholders and shareholders plan to file a document contesting Parmalat Finanziaria insolvency on the grounds a private investigator has located $7.7 billion in assets allegedly missing from its accounts.

Related topics: Manufacturers

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