Comment: Fonterra problem highlights danger of being a one trick pony, says Barber

Allan BarberIt’s a change for the dairy industry to capture the negative agricultural headlines instead of the meat or kiwifruit sectors, observes meat industry commentator Allan Barber.

Unfortunately for everybody in New Zealand, the dairy industry has become such a critical and large part of our economy that the whey protein botulism scare has already caused, and will continue to cause, major concerns for our global dairy trade.

Only last week, Fonterra was again the star of the economy with a $3 billion boost to farmers’ earnings because of a 50c lift in the payout. Yet this week, the company’s very scale has been called into question. People are now asking whether Fonterra can survive its third health scare in five years.

Even if this is unnecessary scaremongering, another question which would have been unthinkable a week ago is being asked. Is Fonterra too big for the country or, to quote the Waikato Times, its gumboots? This ought to make those calling for one mega-meat company hesitate for a moment, before they find that they are asking for something which may contain the seeds of its own destruction.

Fonterra is one of New Zealand’s few businesses of global scale, if not the only one, so it seems unduly critical to question its size. After all if only we had some more companies like it, it wouldn’t stand out as such an exception. Within the dairy industry worldwide, Fonterra is only one of a number of big companies, alongside Nestle, Kraft, Danone and others, but there are some key differences which make its and New Zealand’s position more sensitive to problems like this.

In spite of having substantial parts of its business in South America, Australia and China, it remains essentially a New Zealand company, synonymous with this country. The vast majority of the milk it processes comes from its New Zealand farmer shareholders.

Unlike the other major dairy companies listed, Fonterra is not particularly well diversified, deliberately so. It has specialised in being a supplier of ingredients to food manufacturers rather than creating consumer products and brands, apart from its domestic brands like Anchor and Mainland. To the outside observer this has appeared to be both a successful and logical strategy less demanding of scarce resources than trying to match global FMCG companies like Nestle, Kraft and Danone.

Another weakness is the increasing importance of China as a market with its special emphasis on infant formula. Each of the three health scares, the Sanlu melamine scandal, DCD residues in milk and the latest possible presence of botulism, is seen as a serious threat to the lives of Chinese children. Each time New Zealand dairy produce and its clean, green image have been compromised.

Fonterra’s handling of its public relations has not been as sure-footed as it should have been. The melamine problem was not Fonterra’s fault, but the last two issues have both suffered from inexplicable delays in fronting up and admitting there is a problem. With DCD the repetition of the phrase ‘there is no food safety risk’ tended to be swamped by the perception of a cover-up because, between Fonterra and MPI, disclosure was delayed for four months.

But this latest scare has been traced to a problem with a pipe more than a year ago and tests have been going on for several months until the problem was disclosed last Friday. Fonterra chief executive Theo Spierings has flown post haste to Beijing to manage the Chinese fallout, leaving Gary Romano, managing director of New Zealand Milk Products, to handle the constantly moving PR situation.

This may be the most appropriate division of responsibility and, to be fair, Romano has always been available to talk to the media. But there has been contradictory information emerging at various times and the Ministry of Primary Industries’ acting-director-general has also been making statements without having all the information he might have wanted.

In addition, Fonterra’s chairman, John Wilson, has been conspicuous by his total silence which has led to calls for his resignation from some dairy leaders.

The overall impression is of a company which is in complete control neither of its production processes nor its public relations. This is not good for New Zealand, quite apart from the damage it will have done to Fonterra and its customers, and raises questions about the appropriateness of one company being allowed to have such a disproportionate impact on the country’s global reputation.

Fonterra is by no means the only business to suffer damage to its business or its reputation. Danone subsidiary Nutricia and many other manufacturers of infant milk formula, indeed all New Zealand dairy related businesses, will be adversely affected.

The question has to be asked whether it’s good for New Zealand to be so reliant on the dairy industry and also whether Fonterra itself is in danger of becoming a one trick (or product) pony.

Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at allan@barberstrategic.co.nz.

 

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