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Current as of 24/11/14 07:40PM NZST

Milk scares leave stench

By Michael Botur, Andrea Fox

Exclusive: Fonterra is calling for improved lab-testing, saying the Environmental Science & Research laboratory lacked the capacity to identify an E.coli bacterium in cream. This comes as a French company sues the dairy giant for $500 million, China looks to buy its milk from Germany, and Kiwis look askance at the cream that once adorned our scones and pikelets. Andrea Fox asks: How much trouble is Fonterra in?

Hayley Chamberlain and son Louis drink blue-top milk. Photo / Michael Craig
Hayley Chamberlain and son Louis drink blue-top milk. Photo / Michael Craig

Hayley Chamberlain hoists her son Louis on her hip. He's a big, happy 1-year-old - the picture of good health that New Zealand's dairy industry would like to stick on the sides of trains in Shanghai and Beijing.

Hayley, 28, grew up drinking New Zealand milk. And Louis is on full-strength blue-top milk now - as long as it's not Fonterra's Anchor.

Are she and Louis the new faces of the worried consumer, scared first by the residues of dicyandiamide (DCD) found in Fonterra milk products, then the botulism scare, and now the recall of E.coli-tainted bottles of cream?

No, it's something else entirely. Hayley just didn't like the new, opaque Anchor milk bottles.

"The Fonterra fall-out didn't stop me buying their products," she explains. "It was the change of containers, I just hate it."

If you watched the TV news, you'd think New Zealanders had switched en masse to a dairy-free diet in a mad panic at the series of Fonterra food-safety scares.

In truth, many in our rural heartland think it's all just a big media beat-up, and that Fonterra should be commended for its upfront and proactive response to the latest E.coli scare.

Even in Auckland's trendy Grey Lynn, outside the Harvest Wholefoods organic grocery store, there is a relaxed attitude; Hayley smiles broadly from behind her big sunglasses: "I do feel Fonterra is safe for him to drink, I don't have an issue with that," she says. "It was just their bottles. I changed to Meadow Fresh four months ago."

But as a nation of people that drink more milk per capita than any other, should we be worried about Fonterra's tainted safety record? Or is there a greater concern: that 1.3 billion Chinese consumers might stop buying our milk?


Veteran surfer Peter McClure was disheartened. The 63-year-old had been looking forward to a summer break from his job as managing director of Fonterra Brands. But on January 13, as he gazed out from his bolthole at Pauanui in the Coromandel, there wasn't a wave to be seen. "Sadly the East Coast was flat, there was no surf at all," he says.

Then his phone rang, with news that put his woes in perspective. It was head office, in Auckland, with one phrase that would shake the country: "E.coli."

McClure, head of the dairy giant's Kiwi consumer products division, recalls being "very alarmed".

In 18 years in the dairy product manufacturing business, McClure had never encountered Escherichia coli, a bacteria that occurs naturally in the human gut and comes in several shapes and nasty sizes, from a mild stomach upset to severe and bloody diarrhoea and cramps. Now it had turned up in routine testing on a batch of fresh cream.

The timing of the E.coli result - after the Anchor and Pams brands of fresh cream had left the factory for shop shelves and warehouses - could hardly have been worse for New Zealand's biggest company, already under intense scrutiny after its handling of a false botulism contamination scare in a baby formula ingredient last year, and with the ink barely dry on a highly critical independent report on its performance and a ministerial review still under way.

"My heart sank and I was immediately concerned, because of the recent experience of Fonterra, that we handled this quickly," says McClure.

He smartly swapped board shorts for work clothes and headed for Fonterra's consumer product plant in Takinini, South Auckland, where the suspect cream was made, all too aware that a fresh dairy product like cream is consumed quickly.

By the end of that day, he had ordered the recall of 8,700 bottles of Anchor and Pams house brand fresh cream using the reach of radio and electronic media, and made himself available almost round-the-clock for media interviews to explain to Kiwis exactly what was going on.

Although the suspect cream was confined to New Zealand, the story of the recall galloped around the world, unnerving Fonterra's Asian markets, jittery and sensitive to Fonterra news after the false whey protein botulism scare.

During the recall, McClure and various food-safety experts hammered the message that in the fresh-food business recalls are a fact of life, conducted globally by hundreds of companies daily, and that with increasingly sophisticated testing methods we can expect more.

To date, Fonterra appears to have escaped the recall's potential for further damaging its reputation, though McClure says the situation is "still hard to read".

To McClure's knowledge, no one has died and no one was hospitalised. Unlike the botulism scare, Fonterra won praise for its rapid and transparent handling of the crisis and many consumers say they feel comforted - doesn't the recall prove that Fonterra, the world's biggest dairy exporter, is a good watchdog of their health?

McClure says finding the culprit area at the Takinini factory has been painstaking work. But vitally, the investigation has ruled out a problem in the pasteurisation process, and the two most serious strains of E.coli have been eliminated. There are, as yet, no conclusions on what did cause the cream contamination.

At last count, Fonterra had received about 170 calls from the public, most seeking information. McClure says of those callers, 19 said they had felt unwell and seven linked their malaise to eating cream made during the recall-batch period.

McClure had been particularly concerned about a 6-month-old baby, Ella Rose Beesley, who became ill after eating cream. But the baby's mother, Marissa Beesley, could not pinpoint its manufacturing date and Ella Rose has completely recovered.

Only 1,000 of the 8,700 bottles of cream have been retrieved by Fonterra. McClure concludes the remaining 7,800 bottles have been consumed or thrown out by householders. He says like fresh milk, cream has a 15-day use-by period but cream is usually bought for special occasions and doesn't hang around long in the fridge.

The Takinini cream-processing plant was declared completely free of the bacteria immediately after the contaminated batch and remains so today, he says. Takinini policy is to test all products for bacteria at the start, middle and end of a batch run and the testing regime has been stepped up.


Fonterra has largely emerged from the tainted milk scandal. Photo / Michael Craig
Fonterra has largely emerged from the tainted milk scandal. Photo / Michael Craig

Industry insiders privately wonder why a country with an exemplary food-safety record suddenly has a series of issues, all connected with one company.

Fonterra had a bad start to last year, too, revealing through the Government (some say belatedly) that it had found DCD residue in some of its products. DCD, now off the market, was applied to dairy pastures as a nitrate-leaching inhibitor.


"There is no doubt that New Zealand food is safe, and its systems are some of the most competent and respected globally," said one industry source. "What stands out here is the trend. They say three dots make a trend - DCD, botulism and now this?"

There is talk in the industry that Fonterra bosses have taken their eye off the food-processing ball to focus on a controversial major capital restructure that involved launching tradeable farmer shares and publicly available units on the share market in 2012.

Fonterra leaders and Food Safety Minister Nikki Kaye say the three events should not be lumped together.

Food recalls are a fact of business in the sector, Kaye says, and notes that with improving testing technology and consumer demand for information, recalls are not uncommon and inevitable.

And while Cabinet ministers are themselves heavily involved in the global market management of the botulism scare crisis, and were clearly unhappy at the time with Fonterra's performance, Kaye says there has been no reason for her to get directly involved this time, although she has been briefed by food-safety regulator the Ministry for Primary Industries.

The string of food-safety alerts has happened under the watch of chief executive Theo Spierings, a tall Dutchman who joined Fonterra in late 2011.

Spierings says he can't speak for his predecessors whose time at the helm was unblemished by such public alerts but, in an interview with the Herald on Sunday, he notes that Fonterra used to operate under four divisions and, under the strategy he is driving, it now operates as one whole.

Spierings' holiday spirit was also torpedoed by the E.coli find - he was back at the Fonterra mothership in Auckland's Princes St just minutes after a holiday in the Bay of Islands, and was saying happy New Year to staff when he was told of the need for the E.coli recall.

But the charismatic boss insists in his smooth, chocolate-accented English that recalls "are part of life". "I spoke to Coca-Cola (a key customer) and they said, 'we have one a week'."

Spierings suggests that letting fresh products go into the market while food-safety testing is still under way is a trade-off for shoppers to get the freshest product possible. "Much smaller issues are under the microscope," he says. "That is the reality at the moment and we have to deal with it."

He rejects any suggestion that systemic failures are emerging in Fonterra, suggesting the dairy manufacturing world has changed enormously during his career, along with the advent of social media and heightened consumer sensitivity.

"We are under a microscope after the WPC80 (whey protein) issue, and because of the fact we are so important for New Zealand and because we are the largest dairy exporter in the world.

"We did not expect complete calmness and peace in New Zealand. There is an instant reaction to this, it's emotional and it's around Fonterra."

There is no doubt Fonterra has "screwed up a few times", says AUT University professor of marketing Roger Marshall.

"But their brand is so huge, these things are just glitches. Their brand is very much tied to New Zealand, so it's very stable, and it would take a very big hit for it be hit badly."

Marshall says Fonterra has been in "recovery situations".

"The cream one was quickly recovered and although it would be better if it didn't happen at all, there is a lot of research which shows if a company recovers quickly it is actually quite good for their reputation. It shows they are on the ball and shows consumers they are doing something about it."

It is also possible consumers did not associate the Anchor brand recall with Fonterra, he says. "I know it sounds crazy but not everyone knows what their brands are." Marshall thinks Fonterra's brand management "leaves a lot to be desired".

Fonterra chairman John Wilson was "very disappointed" the recall was necessary. He rejects the suggestion that a trend of food-safety problems is emerging in Fonterra, attributing the events to a global situation of increasingly sophisticated consumers, more capability and sensitivity around food-testing, the power of social media and the lengthening of food supply chains.

Wilson defines Fonterra as a dairy foods business undergoing a "massive transition" from an efficient user of stainless steel for commodity production to an efficient producer of high-quality dairy food products "much closer to our consumers".

"Isn't it great we have a Fonterra in a New Zealand context? It's a shame we don't have another three or four Fonterra-like businesses in this country. I think these discussions would be different if that were so."

But Fonterra is also under continued scrutiny from Europe and China. United Kingdom-based Dairy Industry Newsletter editor Barry Wilson says the cream recall "does Fonterra no good at all" but notes that China, its biggest customer, has nowhere else to go for supply - for the moment. "It's not good news for Fonterra, that buyers desperately want to find alternatives."

Massey University China marketing specialist Henry Chung says China is exploring new supply from countries such as Germany, and Fonterra cannot afford another recall. For Fonterra and its farmer owners, the real pain could still be to come.

French food giant Danone, forced by the botulism scare crisis to recall baby formula products that could have contained the toxin in a Fonterra-sourced whey ingredient, has started legal action against Fonterra, seeking up to $500 million in compensation for brand and reputational damages.

The French company has also cancelled a contract with Fonterra.

Wilson says Fonterra would have preferred to reach a commercial agreement with Danone, but "we will work through the legal situation".

The company that brings in 25 per cent of New Zealand's overseas earnings can be under no illusions: another food-safety misstep this year could prove to be that extra beat of the whisk that curdles the bowl of cream.


Waikato Federated Farmers president James Houghton is 'reasonably comfortable' with decisions made. Photo / Doug Sherring
Waikato Federated Farmers president James Houghton is 'reasonably comfortable' with decisions made. Photo / Doug Sherring

Dairy farmers frustrated

Waikato dairy farming leader and Fonterra shareholder James Houghton was not happy that he had to find out from the media that his company was embroiled in another food safety incident.

The Waikato Federated Farmers president, who famously called the fuss around last year's Fonterra botulism contamination alert "a storm in a teacup", says he was frustrated and disappointed at the lack of communication from Fonterra to farmers over last month's fresh cream recall. "The media was told but it was not communicated to us."

"Us" is the farmer-owned co-operative's 10,500 New Zealand shareholders who supplied the $19 billion annual revenue juggernaut with about 17 billion litres of milk last year. (The company also collected and processed nearly 5 billion litres overseas).

Houghton, who farms at Pukeatua, says he cooled down once he understood the recall steps Fonterra was taking, and became "reasonably comfortable" with the decisions it made.

He believes the latest food safety issue is simply a result of better science. "Things can now be measured in parts per billion that used to be parts per thousand."

But he is still troubled that the public want Fonterra to behave ethically, by going public.

"The average public cannot comprehend how much product Fonterra produces a year. And the majority of the public is totally disconnected from their food [source] but want to preach morals and ethics."

The recall was for 8,700 small bottles of cream. Fonterra makes 17 million of them a year. The company said the volume recalled was equal to that sold by the two major supermarket chains in a week.


Eme Kilkenny believe China is wielding a political axe. Photo / Michael Craig
Eme Kilkenny believe China is wielding a political axe. Photo / Michael Craig

Shopping for safety

Eme Kilkenny frowns.

"It's definitely not a good look for Fonterra," she muses.

"The problem is that once mud sticks, it's hard to get off."

We've interrupted the Aucklander while shopping to ask about the milk she buys.

It's the sort of question usually thrown at political leaders, to ascertain whether they're still in touch with regular people: "How much do you pay for a 2-litre bottle of milk?"

Except, in this case, the questions are: How safe is your milk? What do you think about the production processes? How would you assess the responsiveness of New Zealand's biggest producer, Fonterra?

Perhaps reflecting the public attention given to Fonterra's problems over the past month, Kilkenny rises to the challenge.

"I remember hearing that there was supposedly a high bacterial count in a Fonterra pipe, then it was discovered to be clear, but the bacteria counter information hadn't been supplied," she recalls. "So the Chinese think there's a problem with Fonterra.

"But I think a lot of Kiwis would be suspicious, as I am, of products produced in China because of their quality control. It's highly politicised because the Chinese have an interest in downgrading the assets of other nations so their products can rise to the top, as it were."

The verdict, then?

"I think with any food-processing environment, bacteria can naturally enter the process. Basically, it's a lack of thorough quality controls, maintenance and hygiene standards. I think Fonterra's reputation will be affected for years."

So will she buy Fonterra milk products?

"I think organic milk is safer because of higher standards and smaller production facilities, which are easier to maintain and because the source material on organic farms is superior," Kilkenny says.

"But I just buy the standard unbranded milk because I've heard there is no difference between highly marketed brands. My understanding is you're paying a premium for the container not the product."

- Herald on Sunday

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