Fonterra in Compensation Talks with Danone Over Product Recall -- Update

   By Rebecca Howard 
 

WELLINGTON, New Zealand--Fonterra Cooperative Group Ltd. has begun compensation talks with major dairy customer Danone SA, as it battles to draw a line under a food-safety scare that triggered a global recall of some milk products and hurt New Zealand's reputation as a reliable food supplier.

In early August, Fonterra said three batches of one of its dairy products, whey protein concentrate, might contain harmful bacteria. The news led to product recalls in countries including China and New Zealand, affecting Danone and other companies.

While subsequent testing indicated that the organism wasn't in fact harmful, the New Zealand government and Fonterra are conducting several investigations into the incident and the way it was handled.

The recall dented the image of the dairy sector in New Zealand, which markets itself as an exporter of high-quality food. Dairy sales overseas account for around a quarter of New Zealand's exports and Fonterra supplies the bulk of those products.

Fonterra and Danone were in confidential talks to reach an agreement that was acceptable to both sides, Fonterra said Wednesday. It confirmed discussions are ongoing "but strongly denies any legal liability to Danone in relation to the recall."

Danone officials weren't immediately available for comment. In late August, the company said recalling several of its infant formula products in eight Asian markets had a significant impact on the group's Asian baby nutrition division and that it was reviewing its "recourse and compensation options."

In New Zealand, Danone owns Auckland-based Nutricia, which makes the Karicare infant formula brand that was part of the recall. A spokeswoman said she was unable to comment on the compensation talks.

At its annual results last week, Fonterra said it has set aside 14 million New Zealand dollars (US$11.5 million) to settle damages claims for the financial year ended July 31. Chief Executive Theo Spierings said then it was too soon to comment on the total cost of the food scare.

Write to Rebecca Howard at [e-mail]

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