Archive for August, 2013

The botulism scare that wasn’t

August 28, 2013

So Fonterra’s botulism contamination problem wasn’t a problem after all according to the tests conducted by the Ministry for Primary Industries. It is most unfortunate that Fonterra got it so wrong that it felt the need to wear a hair shirt and submit itself, not to mention its own management, the government and the country as a whole, to the worst public relations disaster imaginable.

 

The original tests were carried out by AgResearch which still stands by its test results, but according to MPI’s tests by global experts, the whey protein contained a different gene from the Clostridium botulinum.

 

MPI took it seriously, the government took it seriously, Gary Romano fell on his sword and two managers have been dismissed. China was completely spooked by the prospect of infant deaths, while Russia and Sri Lanka have discovered an opportunity to place bans, temporary or otherwise, on New Zealand dairy production.

 

Infant formula manufacturers will have suffered untold damage to their businesses, from image, financial and future sales perspectives.

 

The damage to our image abroad has been incalculable. When newspapers all over the world take delight in writing headlines such as ‘100% Manure’ and question our right to promote our tourism industry on the back of our clean, green environment, one wonders whether we can ever recover from this single mistake.

 

The answer is that we will in time, but perhaps nobody will ever really believe the 100% Pure claim again, even if it was never meant to be taken literally.

 

Having said that, the recent spate of food safety problems, among them the apparent discovery of traces of chemicals which weren’t there, is not all that surprising when one thinks about it.

 

New   Zealand’s exports are massively weighted towards agriculturally based food products, all of which have the potential to pose more or less serious food safety issues. This is why MPI’s inspection regime is so comprehensive, although the dairy production problems may suggest to an outside observer that the systems in place are not as failsafe as they should be.

 

Only a couple of days ago Greens spokesperson, Stefan Browning, has called for MPI to stop the practice of allowing meat companies to carry out some of their own inspection procedures and revert to all meat inspection having to be performed by AsureQuality’s meat inspectors. Browning said the meat industry is potentially a comparable risk to the dairy industry.

 

Therefore it’s a great relief that the systems didn’t actually fail in the case of Fonterra’s dirty pipes. Someone who ought to know told me more than a week ago that there would be no traces of Clostridium botulinum found in the whey protein, so it all appears to have been a big fuss about nothing very much.

 

However there is a question as to whether all food safety has suddenly been compromised by a fall in standards caused by devolving responsibility to the companies which produce or process the food products. There is no evidence of a sudden drop in standards in spite of recent events, although conspiracy theorists will assume that independent Government employed inspection has been compromised by companies being allowed to inspect their own products.

 

In this case it was a test by AgResearch, a Crown Research Institute, that provoked the contamination scare, although presumably the product had already been cleared by Fonterra’s in house testing laboratory.

 

In the dairy industry there are 49 Approved Recognised Agencies including both independent testing agencies and company owned laboratories. This latest chain of events does not necessarily invalidate this testing structure.

 

There would appear to be potentially a long queue of people and organisations looking for compensation, including dismissed managers, infant formula manufacturers whose businesses have been undermined, Tourism New Zealand whose brand has been dragged through spilt milk powder and all those businesses which depend on our international reputation.

 

It is ironic that Fonterra has just announced its highest ever payout to farmers which will of course be great for the economy, but that might not be enough to compensate for the damage caused by the company’s PR disaster.

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Balance sheets under stress from lower livestock numbers

August 21, 2013

After the discussions between meat companies, lobbying by MIE, conferences and strategy debates, right now an eerie calm has settled over the meat industry. This is partly due to the mid winter slowdown in processing activity with only bobby calves to get excited about. (more…)

Important not to let China dominate red meat sector

August 19, 2013

It’s a scary thought how quickly things have changed, but China has become one of New Zealand’s biggest markets for red meat, almost without any warning. (more…)

Fonterra problem highlights danger of being a one trick pony

August 6, 2013

It’s a change for the dairy industry to capture the negative agricultural headlines instead of the meat or kiwifruit sectors. 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, 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 surefooted 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. The Chief Executive Theo Spierings has flown post haste to Beijing to manage the Chinese fallout, leaving the Gary Romano, MD 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 MPI’s 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.

Debt puts pressure on large meat companies to achieve solution

August 1, 2013

If there was ever a compelling reason for the meat companies to sort out the problems of procurement competition and excess capacity, the debt levels on the balance sheets of the big three at the end of last season provide one. (more…)