Forecast preceded crisis news

Fonterra chief executive Theo Spierings and chairman John Wilson did not know about the baby milk product contamination when they announced the forecast payout boost for dairy farmers last week.

And while Northland farmers wanted to know how the contamination scandal could affect their payout, it was too early to speculate what the impact could be, Fonterra group director of communications, Kerry Underhill, said yesterday.

He told the Northern Advocate the 50c forecast payout increase to $7.50 a kilogram of milksolids for the 2013-14 season was announced early on July 31 before the CEO and chairman had received any indication that there was a quality issue with whey protein produced at a Waikato dairy factory.

It wasn't until later in the day that tests indicated the potential presence in the whey protein of bugs which could cause botulism. While the quality issue had emerged in March, tests had needed to be carried out to determine if there was a possible health risk.

"That doesn't happen in five minutes in a company of Fonterra's size," Mr Underhill said.

When Mr Spierings was told about the test results late last Thursday, he had set up a meeting of directors for Friday morning to tell them about the potential contamination and later that day the Ministry for Primary Industries was informed.

On Saturday, Mr Spierings had announced the product recall which sparked overseas bans on Fonterra products, a slide in the value of the New Zealand dollar and the biggest storm of criticism to face the company since the 2008 melamine contamination scandal in which babies died after drinking infant formula manufactured by the Chinese dairy company Sanlu, in which Fonterra held a major stake.

While emphasising it was too early to assess the impact of the latest contamination issue on the dairy farmers' payout, Mr Underhill pointed out that global dairy trading prices had remained stable for Fonterra yesterday.

Recovery of the New Zealand dollar and Fonterra share price rises are other optimistic indicators.

In a separate development, Fonterra yesterday confirmed it has been fined about NZ$900,000 (RMB 4.47 million) following the conclusion of the China National Development and Reform Commission review of pricing practices for consumer dairy products in China.

Commenting on the fine, Mr Underhill said it was understood to be in the lowest range of penalties imposed on a number of companies in the dairy industry.