Sour times in the dairy industry

Queen Elizabeth famously had one in 1992. Now it is dairy giant Fonterra - New Zealand's largest exporter - that has experienced an ''annus horribilis'', as agribusiness reporter Sally Rae reports.

January 2013: Fonterra moves to persuade global customers that New Zealand dairy products are safe in the wake of the discovery of dicyandiamide residue in milk.

Chief executive Theo Spierings says the co-operative's testing found only minute traces of DCD - a nitrification inhibitor used by the dairy industry to reduce nitrate leaching into waterways and greenhouse gas emissions - and they were about 100 times lower than acceptable levels under European food safety limits.

Labour primary industries spokesman Damien O'Connor questions why the issue was not disclosed in September 2012 when Fonterra discovered traces of DCD. Mr Spierings rubbishes Mr O'Connor's claim it was hushed up to allow the Fonterra Shareholder Fund float to occur unimpeded in November last year.

August 3: Shortly after midnight, a Fonterra press release advises of a quality issue involving three batches of whey protein concentrate (WPC80) made in New Zealand in May 2012. It is later revealed the contamination was a result of a dirty pipe at its Hautapu plant in Waikato. A potential issue was identified in March when a product tested positive for clostridium.

Product samples were tested over the following months and, on July 31, tests indicated the presence of a strain of clostridium (Clostridium botulinum) in a sample, which could cause botulism. WPC80 was used by Fonterra's customers in a range of products including infant formula, milk powder and sports drinks.

The announcement makes headlines around the world. It leads to import bans on affected products in Belarus, China, Kazakhstan and Russia and is a PR disaster.

August 6: Federated Farmers dairy chairman Willy Leferink points out no-one was sick and the recall of products stemmed from Fonterra's own product testing. The volume involved was a ''fraction'' of the 2.5 million tonnes Fonterra exported each year - the 38 tonnes represented 0.0015%.

August 7: Fonterra chief executive Theo Spierings apologises for the anxiety caused by the issue. He says extensive testing shows the potential food safety risk was ''minute but that it was a risk nonetheless'', and the Ministry for Primary Industries, customers and the public were immediately informed.

• The first GlobalDairyTrade auction since the scare sees only a moderate 2.4% hit on prices, which economists say is in keeping with the normal volatility of the fortnightly auction results.

August 8: Fonterra chairman John Wilson, who, until now, had been the invisible man, appears before the media for the first time and announces an independent review.

He apologises on behalf of the board and says Mr Spierings and his team have made the ''right decisions'' and are continuing to do everything they can, as quickly as they can, in what has been a complex issue.

But he also says there are serious issues that need to be learnt from it, which was why, in addition to the operational investigation Mr Spierings has already committed to, the board will conduct a comprehensive formal review of its own.

The review will be led by the independent directors of the Fonterra board, include independent expert advice and will cover the period from the time the affected product was manufactured in May 2012 through to the recovery operation. It is hard not to draw comparisons with Mr Wilson's predecessor, Sir Henry van der Heyden, who surely would not have remained silent for so long.

August 11: Prime Minister John Key confirms a ministerial inquiry will be held.

August 12: Mr Wilson (right) announces Fonterra's board has established the WPC80 inquiry committee and charged it to oversee an independent review into the circumstances giving rise to the affected whey protein concentrate and subsequent chain of events.

The committee will be chaired by independent director Sir Ralph Norris, joined by fellow independent directors Simon Israel and John Waller, farmer elected directors Blue Read and Nicola Shadbolt, and external independent member Dame Judith Potter, with a second independent member yet to be appointed.

• Fonterra announces Maury Leyland, group director of strategy, will lead its recovery management team for the precautionary recall and will oversee the operational review, which is separate to the one being conducted by the board of directors, but the findings will be shared directly with them. The operational review will be completed by the end of August.

• Ministry for Primary Industries begins a compliance investigation into the incident to determine whether regulatory requirements under the Food Act and the Animal Products Act were met by all parties involved, or whether any parties may have committed breaches or offences.

MPI acting director-general Scott Gallacher says the ministry has a ''number of questions'' about the incident, including when relevant parties were informed, and when they should have been informed. Maximum penalties for breaching regulations under the Food and Animal Products Acts range from $100,000 to $500,000 and/or up to 12 months imprisonment, depending on the nature of the offence. MPI will also undertake a formal debriefing process on its own response to the incident ''to identify any lessons learned''.

August 14: The contamination scare claims its first scalp with the resignation of NZ Milk Products managing director Gary Romano - once touted as a possible successor to former chief executive Andrew Ferrier. Mr Spierings assumes interim responsibility for the day-to-day operations of NZ Milk Products.

• The first inquiry committee meeting confirms terms of reference for the inquiry. Further independent member Prof Stuart McCutcheon will join the committee. An international expert on the manufacturing and safety of food and food components, Jacob Heida, is appointed to assist with technical aspects.

August 16: Two unnamed Fonterra senior managers are placed on leave. August 18: Fonterra rejects the allegations on which a temporary injunction has been made to prevent it selling its products in Sri Lanka.

The injunction, which the co-operative says was brought by three individuals who work for a local union, was over DCD contamination fears and prevents Fonterra from selling and advertising its products in Sri Lanka for the next 14 days. Fonterra says independent testing has found no traces of DCD in any Fonterra branded products in Sri Lanka.

August 19: Primary Industries Minister Nathan Guy and Food Safety Minister Nikki Kaye release the draft terms of inquiry for the Government's investigation into the WPC80 incident.

The inquiry will be in several parts - Part A will look at how the potentially contaminated whey protein concentrate entered the New Zealand and international market and how that was subsequently addressed; Part B and C will look at regulatory and best practice against the background of this incident in relation to the dairy industry, including the response of regulators.

The inquiry will report on any recommended legal, regulatory or operational changes. Miriam Dean QC has been invited to chair the inquiry.

• Export certificates for four consignments of lactoferrin - a naturally occurring protein found in milk - manufactured by West Coast-based independent dairy co-operative Westland Milk Products are revoked by the Ministry for Primary Industries, following the detection of nitrate levels that exceed the New Zealand standard. The consignments were derived from two affected batches of lactoferrin manufactured by Westland at its Hokitika factory.

One batch was exported directly to China as an ingredient for other dairy products and the second batch was supplied to Tatua Co-operative Dairy Company and also exported to China. Westland's chief executive Rod Quin says the product has been tracked and quarantined and the nitrate levels do not comprise a food safety risk. Westland is investigating to ''establish the root cause'' and has implemented ''corrective actions''.

August 21: Fonterra says it has put in place a programme that will provide additional quality assurance for its nutritional plants and it will ''check, double check and triple check, if necessary''. The programme will begin at the Hautapu site this week before being introduced in Fonterra's other plants.


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