Fonterra fallout could spread to other exports

A Milk tanker signals to turn into the Te Rapa Fonterra Dairy Factory. Photo / Christine Cornege.

Fallout from Fonterra's milk formula scandal could spread to other agricultural exports, but the extent of damage caused to Fonterra and New Zealand's global brand will depend on how the dairy cooperative handles the issue in coming weeks, brand experts say.

Food quality in China was a very sensitive subject and New Zealand needed to remember many Chinese consumers had already switched to non-New Zealand brands as a result of earlier food quality issues, said New Zealand Asia Institute's China studies director and University of Auckland supply chain management Professor David Robb.

University of Auckland branding expert Dr Mike Lee said as the largest company and exporter in the country, Fonterra was the face of New Zealand's dairy industry.

The current formula scandal did not only affect the brand, but the entire product category, he said.

"It's sort of strike three. They've had two other things go on prior to this, so it's becoming recurring."

It would be hard to measure the long-term impact of the scandal. However due to the strong demand for milk products globally, if large importers such as China were satisfied with explanations given and subsequent procedures put in place there could be little to no damage on Fonterra's brand long-term, Dr Lee said.

"Demand [for milk] is outstripping supply basically. Obliviously there has been a temporary loss in the share value of Fonterra but I think as long is this is something that they handle well [they could recover]."

The scandal had the potential to have a domino effect on other New Zealand agricultural exports such as beef and lamb, however the long-term effects would depend on how the scandal is dealt with in the next few weeks, he said.

Victoria University senior brand and marketing lecturer Dr David Stewart said as no cases of the scandal adversely affecting children's heath had been reported, Fonterra had a better chance of recovery.

"Long-term, if they're able to reassure the public quickly that they've recalled the product and they've had no casualties, then they could be all right.

In order for the Karicare brand to recover, Nutricia would will have to win back the global market's trust, Dr Stewart said.

"There will be a lot of people who don't trust that brand anymore. That's one of the key ingredients in brand loyalty - that notion of trust - and that trust has been broken."

Massey University crisis communications expert Dr Christopher Galloway predicted the botulism scare would have an impact far wider than just Fonterra.

The Government and Fonterra needed to think about a coordinated approach to restore trust, he said.

"This crisis is a further blow to our 100 per cent Pure positioning and the repercussions will take a long time to play out."

Fonterra chief executive Theo Spierings did the right thing by jumping on a plane and heading to China, but the three-day delay in going public with the potential contamination of its milk products was a big mistake, Dr Galloway said.

With crisis communication the best principle was to tell it all and tell it early, he said.

"I welcome the urgency that Fonterra has now focused on this crisis. But the company does have some more explaining to do.

"Consumers have long memories but it is possible over time to demonstrate change and regain trust.

"Trust is built on being trustworthy over time. From a reputation point of view, Fonterra need to consider that for some of its stakeholders, this may be one crisis too many."