With the avalanche of articles, reports and interviews resulting from the melamine and botulism ‘incidents’ it would be expected that some light would be thrown on these issues to avoid them being repeated.
The ‘independent’ Fonterra internal report on the botulism crisis presented 33 recommendations largely concerned with the time it took to pick up the seriousness of the situation, and the need to develop a social media strategy and improve communications and by inference the company’s public relations. Action had already been taken on the latter with the appointment of a new communications chief, Kerry Underhill, who says “it is too early to say how many new staff we will appoint to the in-house team but a high priority is to [lift] our game in social media”.
One of his first tasks could be to unravel the unseemly media reporting on the split between Fonterra and AgResearch over who was responsible for the wrong interpretation on the presence/absence of the botulism organism. The report also criticised the ‘fortress Fonterra’ philosophy which again highlighted inadequate communication planning and skills.
A recent report on food safety aspects of the incidents has reassured Minister Nikki Kaye that we have a world leading system, which she simplistically suggests just needs a few tweaks to deal with some new trading relationships.
We live in hope that one final report from MPI will at last throw more light on what actually went wrong, so that such a shambles will not recurr.
Some answers can be found in a recent address by the manufacturing general manager of Synlait Milk, Neil Betteridge. He pointed out that the Fonterra issue hurts the entire New Zealand food industry. “Synlait was a small company and kept a close eye on safety measures taken by its major customers such as Nestle, which was often the first to notice deviations to food products.”
The recent cancellation of a supply contract with Fonterra by the French food maker Danone and its claim of hundreds of millions of dollars, which could be at least half Fonterra’s earnings last year, will according to one economist cost individual dairy farmers $43,000. This shows the botulism issue is not going to go away quickly. And now we have an issue with E-coli.
However, that is only part of the problem. Fonterra chief executive Theo Spierings has talked more about sustainability and the environment than the food industry. Despite criticising the report ‘Water Quality in New Zealand’ by the Parliamentary Commissioner for the Environment, Dr Jan Wright – calling it “in the past and looking backwards” – he did admit that Fonterra was eight-ten years behind the Europeans in tackling these issues. And referring to the co-op’s expectations of 2.5-3.0% growth this year he admitted “we can’t keep growing in this way before hitting a wall in terms of sustainability and the environment”.
Nevertheless, our biggest company, with 90% of the nation’s milk supply and 25% of our merchandise exports, has clearly a huge role to play in assisting the Government to achieve its goal of doubling primary exports by 2025. It was news to many to hear that Fonterra had presented a 10-year growth plan to the Government. It would be interesting to see how that is going to be achieved given the constraints identified above by Spierings.
New Zealand has lost its place as the lowest-cost producer of milk in the world. There are a number of reasons for this including the fact that alternative feeds that 20 years ago comprised 10% of farm expenses are now 25%. Interest costs have risen because of the huge debt carried by the dairy sector, probably up to $35-40 billion, and the Reserve Bank has flagged substantial increases in interest rates.
The real problem with Fonterra, as illustrated by the melamine and botulism scandals, is that they are in the food business but they do not ‘think’ food. This is not surprising as 50% of the directors are farmers and some of the others have interests outside farming. The shareholders council represents the interests of farmers so it is inevitable that Fonterra is really just a big farmer with an outstanding manufacturing capability tacked on. It therefore comes as a surprise that Theo Spierings claims the co-op’s business model is 20 years ahead of the rest of the world. If so, why hasn’t the co-op recognised that becoming a food company would add value to their product instead of their current emphasis on cheap commodities?
• John Lancashire is a former president of the NZ Institute of Agricultural and Horticultural Science.
