Danone, Fonterra to Butt Heads in Court

PARISDanone last week announced it was initiating legal proceedings against Fonterra and terminating its supply contract with the company following a botulism scare last year.

Danone planned to file a lawsuit in the New Zealand High Court and bring arbitration proceedings in Singapore, several months after Fonterra alerted its suppliers that three batches of its whey protein concentrate was tainted with Clostridium botulinum. New Zealand authorities later said the bacteria was not of the kind that causes the sometimes fatal disease botulism.

"This affair illustrates serious failings on Fonterra's part in applying the quality standards required in the food industry," Danone said in a Jan. 8 statement.

Fonterra, the New Zealand-based dairy exporter, acknowledged that Fonterra initiated legal proceedings.

"Fonterra has been in ongoing commercial discussions with Danone and is disappointed that they have resulted in legal action," the company said in a Jan. 9 statement. "Fonterra will now work through the detail of Danones claims. It continues to be confident in its position and will vigorously defend any proceedings."

Danone said any future collaboration with Fonterra would be contingent on Fonterra's commitment to "full transparency and compliance" with food-safety procedures. Fonterra defended its record of "world-class food safety and quality standards, quality systems, and robust testing engines across all its manufacturing facilities."

The concentrate recalled last summer by Fonterra is used in a number of products including infant formula, milk powder and sports drinks.

Bloomberg News reported that Danone lost an estimated $407 million of free cash flow due to the recall. But Fonterra only earmarked $14 million last year to cover costs related to the recall for all eight companies affected by it, according to The Wall Street Journal.

The botulism scare, traced to a manufacturing site in New Zealand, affected markets in Cambodia, China, Hong Kong, Malaysia, New Zealand, Singapore, Thailand and Vietnam.