Inquiry into botulism scare last year highlights entrenched ‘silo’ mentality at dairy giant.

Neither Fonterra nor the Ministry for Primary Industries emerged unscathed in the final report on the botulism scare that rocked the New Zealand dairy industry last year.

The second leg of an inquiry into the Fonterra whey protein scare said the co-operative dairy giant's workplace culture showed an entrenched "silo" mentality that robbed the company of some of the cohesion vital in an organisation of its size.

The 110-page report covering the "WPC80" whey protein concentrate incident, which prompted a widespread precautionary product recall when initial tests, which later turned out to be false, showed the product may have contained a botulism-causing bacteria C. botulinum, detailed a litany of errors.

The errors started on February 1, 2012, when part of a broken torch lens was left in a pipe in a Waikato factory.

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An abnormal 38 tonnes of WPC80 manufactured at the Hautapu plant had made its way into thousands of tonnes of products in various markets by August last year, ultimately leading to widespread product recalls and the imposition of import bans, including by the company's biggest customer, China. The report noted that by reworking, rather than downgrading, the contaminated WPC80, Fonterra had recovered about $150,000.

"The cost to the company and the reputational damage for New Zealand magnified this figure many times over," said the report's independent reviewer, Professor Alan Reilly, chief executive of Ireland's Food Safety Authority.

The report said internal and external pressures also contributed to missed opportunities to correct the course of events. Communication both within and between parts of Fonterra was often unclear, it said.

"And there was also a lack of adequate escalation procedures to deal with possible food safety problems," it said. "The ill-prepared inevitably pay a heavy price in a crisis. Fonterra was not ready for a crisis of this magnitude."

Fonterra lacked an updated, well- rehearsed crisis plan to implement, as well as a crisis management team that could spring into action.

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The report said the Ministry for Primary Industries also lacked a single, coherent food incident plan to implement straight away.

The inquiry, which was headed by Miriam Dean, QC, said the WPC80 incident had spurred Fonterra into a series of comprehensive changes, from boardroom to factory floor, especially aimed at strengthening food safety and quality, and crisis management capability.

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It had also prompted changes at MPI, which had created a regulation and assurance branch devoted more or less solely to food safety. The ministry is also preparing a new crisis response model for implementation next year.

Danone, the French food giant and former Fonterra customer which has sought legal redress from Fonterra, welcomed the findings and recommendations outlined in the report.

"The report is true independent confirmation that Fonterra's conduct in responding to the crisis was inadequate for a company of such international standing," Danone said.

The issue is to go to arbitration in Singapore next year.

The inquiry concluded that MPI's response was hampered by the tardiness of Fonterra in notifying the initial problem and in supplying traceability data to assist with product recall. As a result, critical MPI communications were compromised.

While MPI deserved credit for many aspects of its response, the inquiry found it should have had better-documented decision-making processes, used more rigorous science-based risk assessment and co-ordinated better with the industry to avoid unnecessary confusion.

Maury Leyland, who was appointed to the newly created role at Fonterra of managing director of people, culture and strategy, said there was no place for silos in Fonterra.

"One of our great strengths is that we are an integrated business.

"We have been very clear over the last 15 months that it can't be part of the way we move forward."

Read the full report here: