The price of Fonterra's NZX-listed units rallied by 22c or 3.2 per cent to $7.10 this morning after the company said its food contamination incident had proven to be a false alarm.

At $7.10 the units - which give investors access to Fonterra dividends - were just 2c short of their price before the incident was made public on August 3.

"We have tended to take the view that (Fonterra) it is fairly fully priced up here," Matt Goodson, managing director at Salt Funds Management, said. "This debacle has been far more important for the country, rather than the share price," he said.

Fonterra chief executive Theo Spierings yesterday defended the company's multimillion-dollar recall of dairy product, which was thought to contain a botulism-causing bacteria.


The cooperative this week raised its forecast farmgate milk price to farmers by 30c to $7.80 a kg of milksolids. A higher milk price represents a higher cost to the manufacturing, or dividend paying, side of Fonterra and should theoretically put downward pressure on the unit price.

Goodson said the increased payout would put a squeeze on Fonterra's profitability.

The Ministry for Primary Industries said it had received results confirming that the bacteria found in the whey protein concentrate (WPC) manufactured by Fonterra was not the botulism-causing clostridium botulinum.

As it turned out, the organism was confirmed as clostridium sporogenes, which is not capable of producing botulism causing toxins, the ministry said.