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Current as of 24/10/14 07:40PM NZST

Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Formula scare: Fonterra execs face chop

Heads will roll over infant formula scare but CEO should survive, says industry source.

Heads will roll at Fonterra over the latest infant formula scare to hit the company, but chief executive Theo Spierings' job should be safe for the time being, say farming sources.

Spierings travelled to China from Europe at the weekend for meetings with manufacturers who have used contaminated whey powder supplied by Fonterra for use in infant formula and other products.

One well-placed source said "heads will roll" over the latest contamination, which has been sourced back to a dirty pipe at Fonterra's Hautapu plant in the Waikato. "I don't think it will go as far as Theo, because he has done the right thing in scooting up to China," the source said.

Spierings' predecessor, Andrew Ferrier, made the mistake of not travelling to China during the Sanlu melamine scandal, in which Fonterra was implicated, in 2008.

"So he [Spierings] has done the right thing by going directly to China to be the man on the ground," the source said. "Clearly there will be some heads, but that's for later."

New Zealand's reputation for high-quality food products - the driving force behind $2 billion in annual dairy exports to China - took a hit in January when traces of dicyandiamide, a nitrate inhibitor, were found in New Zealand milk.

Federated Farmers has so far kept its own counsel on the latest issue, choosing instead to let Fonterra and the Ministry for Primary Industries deal with the problem.

Privately, farmers are understood to be furious.

One central North Island farmer said the scare was likely to put downward pressure on the farmgate milk price, which has the greatest bearing on farm incomes.

"In the medium term it will do some damage to the brand because we command a premium for quality," he said. "If we can't provide that, then why pay for it?

"I would hate to be at the next Fonterra shareholders meeting - they will give them a bollocking,' he said. "The directors will be bracing themselves for it I think because they are so tough on farmers' milk quality."

One dairy analyst also stopped short of speculating that Spierings would go.

"It will be a test of his [Spierings'] credentials, that's for sure, so it will be interesting to see how he comes through," he said.

Spierings was appointed chief executive in 2011 - having previously headed the Dutch dairy giant, Royal FrieslandCampina - with big ambitions for Fonterra's role in China.

- APNZ

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