Fonterra is looking at laying off up to 110 workers at its Canpac packing operation, near Hamilton, partly in response to last year's botulism scare and to tighter quality control conditions imposed by China on formula imports.

Canpac is Fonterra's largest secondary packager of milk powders, supplying branded nutritional powders, bulk blended nutritional milk powders, cans and can components. Fonterra offers contract infant formula manufacturing services at its Canpac plant, which employs 330 people.

Fonterra is looking at making Canpac a 24-hour-a-day, Monday-to-Friday operation, instead of the current seven-day-a-week, 24-hour-a-day roster.

Last August, Fonterra issued an alert concerning a possible botulism-causing contamination of ingredients supplied to Danone and other customers.


Additional tests later revealed that it was a false alarm, causing Danone and others millions of dollars in product recall costs. In January, Danone terminated its supply contract with Fonterra.

A Fonterra spokeswoman said Danone's move had played a part in the decision to scale back Canpac.

"Yes, obviously Danone had an impact, but also changes to the Chinese market access conditions have affected some of the third party manufacturers as well," she said.

"It [the scare] played a role, but it's not been the major part of it," she said. "It's been one of the factors, basically."

Fonterra's director of New Zealand operations Robert Spurway said the co-operative had undertaken a review of the site and looked at where to focus the business after some of Canpac's volume had been reduced.

Canpac had been involved mostly in lower-value consumer commodities packaging which could be done more cheaply overseas and the change would see the operation packing more higher-value paediatric nutrition lines, Fonterra said.

"This is not a decision we have taken lightly and we are working through a consultation process with our people around the proposal," he said.

Staff members gathered at the Kingsgate Hotel in Hamilton yesterday and were told the plant was running below capacity and that changes were needed. They declined to speak with media, citing confidentiality agreements.

Spurway said a formal consultation with staff would begin next week, and expected the proposed changes to be enacted by late next month or early September.

Fonterra employs around 2000 people in the Waikato and has invested more than $150 million in the area in the past three years.

Earlier this month, Danone said it was mulling its next move after its legal action against Fonterra was put on hold, with the High Court saying arbitration in Singapore should happen first.

Danone, the parent company of infant formula maker Nutricia, in January started court action in New Zealand and arbitration proceedings in Singapore to get compensation after the Fonterra whey protein concentrate recall triggered by the botulism scare.

It put the cost of the recall at 350 million ($540 million) when it revealed its third-quarter results last year but in its court action alleged projected costs and lost sales would total 630 million.