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Current as of 25/10/16 08:19AM NZST
Business reporter for the NZ Herald

Business Insider: 1080 fallout harmed more than just Fonterra

Smaller dairy players hit even harder than the giant co-op, given their size.
Westland says the scandal caused huge anxiety as it hit while the company's new factory was being built.
Westland says the scandal caused huge anxiety as it hit while the company's new factory was being built.

Fonterra stole the show during last month's sentencing of 1080 blackmailer Jeremy Kerr.

Of all the dairy producers that Kerr hit in the pocket, the co-operative was the only one which appeared in person to verbally denounce his offending and the damage it could have caused to the New Zealand economy.

Since-departed executive Maury Leyland told Chief High Court Judge Geoffrey Venning it was "hard to imagine a worse threat to the viability of the company, the wider dairy industry and the country".

No doubt Kerr's sentencing was seen as an important occasion for Fonterra, given that it spent more than $20 million responding to his threat to spike milk formula with 1080.

But while this was more than half of the total cost of the 60-year-old's blackmail, other smaller dairy producers were hit harder than Fonterra, taking their turnover into account.

Synlait, for instance, was forced to spend $1.9 million to mitigate the threat.

That might seem small stuff compared to the scare's cost to Fonterra, but when you take into account their respective turnovers ($19 billion and $448 million), the Rakaia-based company comes out worse off.

Although Justice Venning referred to the harm Kerr's offending had caused smaller producers, the likes of Synlait didn't get an individual mention during the hearing.

However, around 10 dairy firms provided the court with victim impact statements, which the judge said he had read before the sentencing.

Business Insider was given access to the bulk of those statements this week.

John Penno. Photo / Richard Robinson
John Penno. Photo / Richard Robinson

It has made our customers nervous and they now look at the whole New Zealand market as more risky than prior to this threat.
John Penno, Synlait managing director


Cost: $1.9 million

Synlait managing director John Penno said Kerr's actions were a serious threat to the dairy company's business.

"There was significant concern about our reputation, and about how our customers and suppliers would view our products going forward," Penno said in his company's victim impact statement.

As well as the $1.9 million cost, some of the impact on the company could not be quantified.

"We are fortunate that many of our customers are multi-nationals who understand the risk of food safety blackmail threats, however it has made our customers nervous and they now look at the whole New Zealand market as more risky than prior to this threat," Penno said.

Open Country Dairy

Cost: $198,000

On top of what it spent in the wake of Kerr's threats, Open Country Dairy's general manager Danie Brink said the industry now faced ongoing costs.

"China overseas market access requirements have increased as a result of the threat. OCD has to conduct additional testing to comply with this new Chinese requirement. The costs of these tests are permanent and ongoing. As a result of the blackmail threat customer confidence in the NZ dairy industry has been negatively impacted," he said.

Open Country, a dairy co-operative with 230 staff, said the Ministry for Primary Industries had also launched a review of food defence standards in Kerr's wake.

"OCD expects that the regulation changes to stem from this review will drive significant costs for the industry," Brink said.

Rod Quinn.
Rod Quinn.

Westland Co-operative

Cost: $290,000

When Kerr's blackmail hit the headlines, the Hokitika-based Westland said some customers demanded proof that its products were safe.

"Our reputation and cash flow was on the line," said chief executive Rod Quin.

"Some of our customers expected Westland to prove there was no risk," he said.

Product testing made up more than half of what Westland, the country's second-biggest dairy co-op, spent responding to the 1080 warning.

"At the time of being notified of the threats, Westland was building a $115 million infant formula and whole milk powder plant," Quin said.

"This caused a lot of stress and anxiety for all concerned, particularly as the expansion of our infant formula processing capability was at the heart of our value-add business strategy.

"The uncertainty around resolution to the threat and the ongoing costs associated with mitigating the threat had the potential to adversely impact our business case and the profitability of this product line and ultimately our return on this investment." Yashili NZ Dairy Co Cost: $345,000

Pokeno infant formula manufacturer Yashili said its $250 million plant was delayed as a result of the 1080 threat.

"We suffered ... from the reputational damage in the eyes of consumers," said operations manager Terry Norwood.

"The damage done by these threats will remain in the minds of consumers," he said.

Oceania Dairy Co

Cost: $400,000

Glenavy-based Oceania - a subsidiary of China's largest dairy producer, Yili - said these types of threats "undermine our industry and in turn the people within it".

"Most of the initial actions [responding to the threat] and the associated costs have been of a temporary nature albeit we continue to conduct additional product testing as a result of this threat," its chief executive Roger Usmar said.

Jeremy Hamish Kerr. Photo / NZME
Jeremy Hamish Kerr. Photo / NZME

The blackmailer

• Jeremy Kerr, the owner of another pest-control product, Feratox, mixed highly concentrated amounts of 1080 with baby milk formula and posted them to Fonterra and to Federated Farmers.

• Included in the packages was a letter demanding the country stop using 1080 or he would release poisoned infant milk powder into the Chinese market and one unspecified market.

• The fiasco cost the country more than $37 million, including $5 million on a police investigation.

• Kerr was sentenced last month to eight and a half years in jail.Rod QuinJohn PennoWestland says the scandal caused huge anxiety as it hit while the company's new factory was being built.

- NZ Herald

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