Co-op performing well there after safety scare forced shutdown of its local plants.

Fonterra's Sri Lanka business has fully recovered after a 2013 food safety scare sparked public protests and forced the temporary closure of its operations there.

Leon Clement, managing director of Fonterra Brands Sri Lanka, said it was business as usual after the disruption of 2013, which saw Sri Lankan authorities ban the sale of Fonterra milk products after discovering what they said was the nitrate dicyandiamide (DCD) in two batches of milk powder.

Subsequent tests found that there was no DCD in the impounded product, or any other Fonterra product, but by then the damage was done.

The incident, which came as Sri Lanka looked to decrease its reliance on foreign dairy products and increase its domestic supply - forced the shutdown of Fonterra's plants for a week, with its 750 or so local staff being sent home for their safety.


Clement said the company had recovered but the issue had highlighted the need for Fonterra to become more engaged in the local industry in the countries where it operates.

Sri Lanka's dairy industry is in an emerging stage and Fonterra's focus is on trying to make dairy farming families more profitable and sustainable.

Despite its small size, Sri Lanka is an important market for Fonterra. It counts as one of the co-operative's four "leadership" markets - markets were it plays a leading role in the local dairy sector. The others are New Zealand, Chile and Malaysia.

Clement, who rose through Fonterra's ranks through its unit Tip Top, said the DCD incident, while serious at the time, was a "blip" in the company's successful history 35-year history in Sri Lanka.

"At the time, there was a lot of misinformation around about our products," Clement said. "Thankfully, based on the strength of our brand here, and I think the real passion that our people displayed, we are able to turn the business around and get it back on track."

"Within six months we were back - in terms of markets share - to where we were.

The economic impact took longer - about a year - to turn around.

"A key lesson for us was that it showed really did need to go about building better relationships across the industry and across our wider business, not just in Sri Lanka but around the world," he said.

Fonterra does not disclose country-specific results, but its latest annual report showed that its consumer and food service business in Asia returned normalised earnings before interest and tax of $202 million in the year to July 31, up from $51 million a year earlier. The report credits Sri Lanka as a highlight.

From here, Clement said Fonterra was starting to move forward and get some good growth in the business. The co-op has just launched Anchor UHT milk made with Sri Lankan milk.

One of the main dairy categories is full cream milk powder.

Unsurprisingly, Sri Lankans drink a lot of tea, and in the full cream milk powder category, Fonterra has the number one position, with Anchor, and has the number two slot through its local brand - Ratthi.

The category represents more than 50 per cent of the local dairy category in Sri Lanka, and Fonterra has about a 60 per cent share of that.

"So having a leadership position in the largest dairy category puts us in a good space," he said. "That's why we, to a certain extent, punch above weight, not just within Fonterra's world but also as an important part of the Sri Lankan landscape," he said.

Having that leadership position meant helping countries to develop their local industries as well as building important relationships.

Sri Lanka operation

• Sri Lanka is one of Fonterra's four "leadership" markets.
• Employs over 750 local people.
• Imports milk powder from NZ and turns it into products, such as Anchor Full Cream milk powder.
• One of Fonterra's offshore "milk pools" - sourcing milk locally for UHT milk, yoghurt and curd.
• Has two factories - packing and blending plant, and a cultured and drink plant.