Fran O'Sullivan: Fonterra still in a state of denial

Fonterra chief executive Theo Spierings. Photo / Mark Mitchell

QC’s findings over botulism scare belies company’s claim that NZ systems as safe as anywhere in the world.

There is one salient comment in the report by Queens Counsel Miriam Dean into the WPC80 incident that ought to give Fonterra's directors and shareholders cause for concern: "A company that is more focused on its own commercial reputation in a crisis does so at its peril. Companies should think about consumer safety first and reputation second. If consumers lose trust in a company, that will be its undoing."

The inquiry into the "WPC80 incident: causes and responses" provides plenty of evidence that Fonterra broke this most basic rule for a food industry company leading up to and during the false botulism scare. Throughout the crisis - and the events that gave rise to it - the company was slow to put food safety as its priority because it did not have the appropriate culture.

It was instead focused on production and market share.

This aspect has to some extent been glossed over in the prior Fonterra management report and the review undertaken by the Fonterra board itself. These reports have talked about a "silo mentality" and "Fortress Fonterra".

But these are simply manifestations of the lack of clear communications platforms (and adherence to them) that existed at the food co-operative in August 2013 when the crisis emerged. It is not the fundamental issue.

What is more compelling is the fact that staff cut corners when they shouldn't have; food traceability systems were lacking, the liaison with AgResearch over the tests of the suspect whey protein concentrate was a joke; the management and board did not meet their obligations to report the suspected contamination to the Ministry of Primary Industries within agreed deadlines; Fonterra went out to the market with wrong information about a customer's products (Karicare) costing that company massive brand damage, and, did not apply a rigorous fact checking process before issuing communications.

It's hard not to reach the conclusion that Fonterra did put its own commercial returns ahead of ensuring the whey protein concentrate was fit for purpose.

A peer review by Professor Alan Reilly, chief executive of the Food Safety Authority of Ireland, says a sobering inquiry finding is "the sad reflection that this incident with its serious consequences was entirely avoidable, had a strong food safety culture thrived in the workplace".

"As the inquiry noted, by reworking, rather than downgrading, the contaminated WPC80, Fonterra recovered about $150,000. The cost to the company and the reputational damage for New Zealand magnified this figure many times over."

It's not as if Fonterra had not had previous warning signals.

It's obvious from the Dean report that Fonterra should have been prepared for a major crisis. Its reputation took a trashing during the previous "DCD incident".

It did take some precautionary moves but as the report says: "Regrettably, lessons that could have been drawn from the episode such as the need to involve senior management early on and to draw up contingency plans for crisis communications, information sharing and testing went largely unheeded as the WPC80 incident approached."

The inquiry into the incident has been a long time coming.

Several key players in the business sector wanted it out of the way months ago, because it was over-shadowing their own efforts to re-establish trust in New Zealand food products, particularly in China. The Chinese Ministry of Foreign Affairs had also wanted the inquiry report to be published before President Xi Jinping's recent visit.

The incident caused huge ructions right across the NZ dairy industry.

China has been critical of Fonterra's tardiness in notifying the correct NZ food safety authorities and its failure to be able to quickly confirm where products that may have contained suspected contaminated whey protein concentrate ended up.

Fonterra chief executive Theo Spierings said yesterday: "At the time of the recall, we did what was right based on the evidence we had."

Spierings maintained the report "highlighted once again that New Zealand's dairy food production and safety systems are as safe as any in the world".

He should have another read.