Learning from mistakes

Fonterra has gone some way in reassuring the New Zealand public and its many overseas clients it has taken seriously a report released this week on its internal safety and monitoring systems.

The co-operative said yesterday it was forced to dump 150,000 litres of raw milk, just days after an independent inquiry found the dairy giant failed to recognise the huge reputational risk of this year's botulism scare.

Fonterra says 14 tankers at its Hawera milk processing plant in Taranaki were potentially contaminated with mud and gravel believed to have entered the plant's tanker cleaning system, on Friday.

Fonterra has built itself into a global dairy brand, known around the world as operating from New Zealand.

Despite criticism New Zealand had poured too much money and energy into creating one global image of being an exporter of quality dairy goods, the growth of Fonterra continued unabated.

The co-operative has not had an easy year. On August 3, an early-morning press release from Fonterra advised of a quality issue involving three batches of whey protein concentrate made in New Zealand in May 2012.

It was later revealed the contamination was a result of a dirty pipe at its Hautapu plant in Waikato.

From there, the situation deteriorated into one of the worst public relations examples seen in New Zealand. Committees were formed, inquiries launched and product recalls announced.

The month of August was a low point for the giant of New Zealand's corporates.

A damning report released this week found Fonterra failed to recognise the explosive reputational risk involved in the scare.

The list of things that went wrong included the belated recognition (and delayed escalation to senior management and the board) of the risk.

Inquiry chairman Sir Ralph Norris said Fonterra failed to join the dots between botulism, infant food products, consumer sensitivities and Fonterra's global reputation.

The inquiry found no single event or individual caused the contamination scare but the co-operative suffered international damage to its reputation.

Sir Ralph says changes are not optional. They are vital. Fonterra chairman John Wilson, invisible during the early days of the fiasco, says the inquiry gives him confidence the company will recover from the scare.

All very well, but what about the reputation of New Zealand's other dairy exporters, and to companies that used Fonterra's products to market their own goods? Damage has been widespread.

Fonterra has a reputation of being uncommunicative with the market and the media.

The early press conferences regarding the potential whey contamination left many frustrated with the process.

Dairy products, including infant formula, were withdrawn in more than seven countries in August after Fonterra suspected 38 tonnes of the whey protein was found to be contaminated.

And still the co-operative prevaricated.

Relations between New Zealand and China were sorely tested.

The inquiry findings show Fonterra is a high-quality organisation with talented and dedicated people, but the whey protein precautionary recall let it down.

There were shortcomings in several areas, which, compounded by other events and coincidences, converged to create a significant issue.

The inquiry findings and recommendations do not indicate any fundamental problems with Fonterra.

However, they do point to a range of improvements Fonterra can make to become an even better company, the inquiry panel said.

The Government has its own inquiry taking place.

The ministerial inquiry is expected to deliver an interim report in mid-December, and the Ministry for Primary Industries' compliance investigation is expected to be concluded by the end of the year.

Fonterra has taken on board the criticisms expressed about its systems, even before the public release of the inquiry. Such work needs to continue, but the early signs are promising.


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