It’s quite remarkable how Fonterra has evolved to become New Zealand’s biggest company given the way the dairy giant seems to struggle to take on board its errors of the past.
When Fonterra discovered residues of the biodegradable DCD, or dicyandiamide, when it tested for the chemical in September, the shock must have been immense. This is not the sort of thing any company wants to learn, but armed with a coherent and sensible method to limit damage, it should have managed the situation a whole lot better than it has done.
In terms of corporate crises, food safety is a doozie. When a car company or table lamp maker recall their products, consumers are generally more forgiving than if a food company makes a safety announcement. You put food into your body, thereby increasing your investment in its safety; if you hear it is in any way tainted, your reaction will be focused on personal risk and physical harm.
In a perverse way, Fonterra was probably better placed to deal with such a snafu than many other food producers. After all, it had weathered one of the industry’s biggest scandals only a few years beforehand.
The Kiwi dairy major had been involved in the Chinese SanLu company, which was at the heart of the 2008 melamine baby food poisoning scandal. Back then, Fonterra claimed to have immediately informed the Chinese authorities about the contamination, and sought the recall of all contaminated infant formula. But with the Beijing Olympics looming, the Chinese government decided to keep it quiet and Fonterra acquiesced.
The delay resulted in thousands of Chinese babies suffering from serious kidney damage, and six of them dying. It also succeeded in turning an issue that could have been managed into a global scandal that can still be felt over four years later.
So given the choice between swift action, based on its own experience in China, and to sit back and watch the grass grow, Fonterra elected to do the latter. It waited for over a month to brief government officials in the Ministry for Primary Industries (MPI) of its discovery, and together both sides sat on the issue for almost three more months before the ministry mumbled something about it to the public.
Naturally, there has been some lively speculation about the timing of the discovery relative to Fonterra’s massively anticipated stock market launch, which came roughly half-way between discovery and announcement. As one might expect, the term “cover up” has appeared quite often of late, even though Theo Spierings, Fonterra’s chief executive, as strongly denied any hint of this. The Financial Markets Authority, however, is keeping the issue under inquiry and might yet launch an investigation.
Just as incredible as delaying the announcement, Fonterra and the MPI decided to mitigate the fall-out from its response in a way that beggars belief. Following the confirmation of test results, the ministry set up a working party that included representatives of the dairy industry and fertiliser companies who manufacture DCD; their brief was to develop a public relations strategy to manage the issue.
This working group met five times over December and January before the MPI issued a press release a whole four months after Fonterra discovered the DCD residue.
Its decision to inform consumers by rationalising that the chemical was not a risk to health was just about the worst it could have made. Ignoring the not insignificant fact that DCD is not authorised for consumption in New Zealand, or in any of the country’s export partners for that matter, it still is exceedingly arrogant for a company to decide what is or isn’t relevant when it comes to public health matters.
But this is not just a matter affecting consumers, it is also critical for New Zealand’s NZ$14bn dairy industry. Even though members of the Dairy Companies Association joined the ministry’s DCD working group, independent dairy firms only learned about the discovery at the same time as the public.
Caught unawares, they were not given the chance to test their own products. As a result, they cannot be sure that their customers around the world will accept the orders that are currently in transit or those that have recently arrived.
And let’s not forget China, which in a quirk of irony now relies on New Zealand for 80% of its dairy imports as a result of a belief that Kiwi milk is safer than its domestic products. Already very sensitive to issues relating to food safety, China has been seeing some reports in the press that “NZ milk is poisonous”.
The story is still developing in the Far East and in spite of feverish Kiwi diplomacy in Beijing, there is a clear risk to New Zealand’s trade with the country. Currently, Chinese authorities are investigating the safety of New Zealand milk and infant formula.
All New Zealand can hope for now is that China’s food scientists discover nothing alarming in their testing. This will likely be the case given that Taiwanese researchers have already given the green light after conducting similar tests. What's more, the DCD spraying season ended in spring last year, leaving plenty of time for the residue to disappear.
Kiwis can also hope that Fonterra, as New Zealand’s most high-profile company, will finally begin to learn from its mistakes. It needs to understand that it must keep the public in the loop, especially when consumers are better connected than ever. To bungle one such scandal is unfortunate, but to do it a second time is unforgivable. Heaven forbid, a third might well spell the end for New Zealand’s dairy on the world stage.