KEY POINTS:
The scandal surrounding Chinese dairy firm Sanlu - one of 22 companies caught up in a melamine poisoning crisis in China - continues to dog Fonterra this year.
The human cost was huge - nearly 300,000 ill and at least six babies dead - but the final business cost is hard to quantify.
Fonterra has effectively written off its 43 per cent investment in Sanlu at a cost of about $201 million - a stake it bought for US$107 million ($210 million) in 2006.
The write-off is not cheap by anyone's standards and apart from a financial cost which can be calculated and filed away, there is the lost momentum and wasted effort.
It was a disastrous outcome for the China strategy.
Fonterra says it still has a solid base in China, which includes a strong ingredients business expected to sell more than 95,000 tonnes of imported New Zealand product this year.
Chief executive Andrew Ferrier says big businesses have to understand they will take body blows.
"We say 'what do we learn from it?' and we move on and that's all," Ferrier says.
"We're not going to spend time going back over and over and over it again.
"We've got to make sure that we did all the right things all the time and we've done that, we're very comfortable about that, we just want to move on."
Wanting to move on is understandable but it is not going to be that easy.
Former Sanlu chairwoman Tian Wenhua has been sentenced to life in prison but China's state news agency, Xinhua, reports she is planning to appeal and that during her trial she said she continued to make tainted products because of a document given to her by a Fonterra representative director on acceptable melamine levels in the European Union.
Xinhua says that rather than stopping production of tainted products after the contamination was confirmed on August 1 last year, Sanlu decided to limit melamine levels to within 10mg for every kg of milk.
Ferrier says the document was provided by a Fonterra representative but it was part of a process of gathering information and it was made vividly clear to Sanlu the only acceptable level of melamine was zero.
At the annual general meeting in November chairman Henry van der Heyden said the board had commissioned an external legal and risk review of the Sanlu issue, which would also recommend how to improve risk evaluation and monitoring, and crisis management procedures.
An external review was a good move.
The bad move is that Fonterra will not let the public see it.
It would have been far better to let the people see it for themselves, or at least an executive summary minus anything deemed commercially sensitive.
Not releasing it provides fuel for doubters.
Fonterra is New Zealand's biggest company, a vital exporter, crucial to the economy, it owned 43 per cent of Sanlu and had three out of seven directors on a company board whose chairwoman is now facing life in prison.
Interest is still understandably high.
We're doing all white
Fonterra last week slashed its forecast payout to farmers by 90c to $5.10 per kg of milksolids but it's still good to be a dairy farmer, says Federated Farmers dairy chairman Lachlan McKenzie.
The $5.10 payout could represent a drop worth about $3.3 billion from last season's record available payout of $7.90, of which Fonterra retained 24c to protect the balance sheet.
It is a huge sum of money the economy would have dearly loved this year but you can't bank on record years - the clue is in the description.
It is a drop from a high place but payouts were never expected to stay so high and international prices were always expected to fall.
The average price of whole milk powder in Fonterra's online auction has dropped 54 per cent since July, while the ANZ Commodity Price Index for dairy products is down by about half since peaking in November 2007.
The price drop to date is roughly in line with a rule of thumb that commodity cycles can drop 50 per cent from a peak.
It has been the speed of descent that left people breathless.
But will prices stabilise?
With the European Union restarting export subsidies and the global economic crisis continuing to lurch along it is a brave time for forecasters.
Fonterra thinks prices are nearing the bottom, although the next 12-18 months will be tough.
Meanwhile, the cost side of the equation was heading the right direction last week, with the official cash rate slashed by 150 basis points to a new low of 3.5 per cent, Rabobank dropping its variable base rate on rural loans by 1.5 per cent and fertiliser co-operative Ravensdown making deep cuts in prices.
Superphosphate was down $111 to $429 a tonne, DAP down $472 to $995 and urea falling $165 to $695.
There will be a delay in the benefit of lower interest rates, with many people on fixed-interest rate agreements, and although costs and prices followed each other they are not always in sync, McKenzie says
"Our major costs are at the beginning of the year and our major income is towards the end of the year," he says.
However, Fonterra's forecast payout is still the third highest this decade.
McKenzie says the fundamentals of a dairy farm business are still as good now as they were at any other time during the decade.
"It's not a calamity in any way, shape or form. It's tight, a bit stressful for the adjustments that have to be made, but it's reality."
