Q+A Theo Spierings Interview

Sunday 11 August, 2013

Fonterra CEO Theo Spierings told TVNZ’s Q+A programme that the cost of the milk powder botulism scare could run to tens of millions of dollars.

When pressed on what the cost would be, Spierings said, ‘It’s tens of millions.’

On the impact of the botulism scare in China, Spierings says, ‘Consumer perception in China at the moment is stable. Of course, there’s always, always a dent after such a
week, and we have to repair it.’

Fonterra is also reeling from fallout from the botulism scare with news that Sri Lanka has ordered the company to recall 40 tonnes of milk powder alleging it contains residue of the farm chemical DCD.

It has also banned Fonterra from advertising around the Anchor brand in Sri Lanka until further notice.

Spierings says its tests prove its products in Sri Lanka are DCD free.

“We’re talking about 40 tons, so it is, in terms of volume, it’s not that significant. But at the same time, they’ve also told us that advertising around the brand is not allowed. And in Sri Lanka, there’s always tension in the market because it’s price controlled by the government, and dairy prices are at the high level. They want to support fresh farming, so there’s always some tension there. And I think with all the noise of this last week, people are connecting the dots, and that’s why this is happening. And we are definitely fighting it, because we have clear certificates – DCD-free, stamped, when it was exported, when it was imported – all clear.”

When asked if it was a perception problem, Spierings said, ‘There’s a whole lot of subjectivity and anxiety around the situation, and that’s why we’re saying we’re going back to the (Sri Lankan) government.’
Spierings says he hasn’t considered resigning this week.
Meanwhile, political commentator Matthew Hooton does not trust the company to investigate itself.
“I think he does need to have a very thorough investigation with the power to compel witnesses. I think it needs to be very, very tough. Fonterra and the dairy industry in New Zealand are masters of the cover-up. You go back to the EU Customs case, you go to Powdergate, you go to Iraq thing, and there is no way that you can trust that company to investigate itself. “

“We need someone like Michael Stiassny, backed up by Professor Gluckman, backed up by a Supreme Court Judge to go in there with the power to compel and get to the bottom of it. And it’s not about a dirty pipe; it’s about the culture of that company. They do not seem to understand that in the food business safety scares happen, they happen often, and they have to be managed. Nestle has a product recall somewhere in the world pretty much at any given time. Yet in this particular company, they just don’t seem to know how to deal with these inevitable problems that will always come up.”

Q+A, 11-midday Sundays on TV ONE and one hour later on TV ONE plus 1. Repeated Sunday evening at 11:30pm. Streamed live at www.tvnz.co.nz

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Q + A
SUSAN WOOD INTERVIEWS THEO SPIERINGS

SUSAN As the Prime Minister said earlier on the programme, the fallout from Fonterra’s contaminated milk scare is going to continue for some time. It will be fuelled by fresh claims this morning after Sri Lanka ordered Fonterra to recall two batches of milk powder, alleging it contains residue of the farm chemical DCD. Now, Fonterra is denying the claims they do nothing to allay the fears both here and to the brand overseas. Joining me now, CEO of Fonterra Theo Spierings. Good morning to you.

THEO SPIERINGS – Fonterra CEO
Good morning.

SUSAN So tell me about this latest DCD scare. It seems Sri Lanka has basically told you to recall some of this powder. How significant is it for you?

THEO We’re talking about two batches. We’re talking about 40 tonnes, so it is, in terms of volume, it’s not that significant. But at the same time, they’ve also told us that advertising around the brand is not allowed. And in Sri Lanka, there’s always tension in the market because it’s price controlled by the government, and dairy prices are at the high level. They want to support fresh farming, so there’s always some tension there. And I think with all the noise of this last week, people are connecting the dots, and that’s why this is happening. And we are definitely fighting it, because we have clear certificates – DCD-free, stamped, when it was exported, when it was imported – all clear.

SUSAN So you’re telling me this stuff is clear. That’s probably not the problem, though. It’s the perception problem now, isn’t it?

THEO I think people are connecting the dots, and there’s a whole lot of subjectivity and anxiety around the situation, and that’s why we’re saying we’re going back to the government. We say it’s exported DCD-free, it’s stamped, it’s clearly stated – I’ve seen the certificates myself – it’s imported, it’s on shelf, right, so we’re fighting it.

SUSAN When you say they’re stopping the advertising, what does that mean around the product? Does that mean all of New Zealand. But what does that mean?

THEO No, it means Anchor. Anchor—

SUSAN So no Anchor advertising in Sri Lanka at—

THEO Until further notice. But Anchor is there for 50 years, so Anchor is entrenched – is really— is better known than Coca-Cola.

SUSAN That’s a big hit on a big brand – a big New Zealand brand, though, isn’t it?

THEO If it takes a long time, yes, but that’s why we’re fighting it straight away, because the brand equity of Anchor is so strong with 50 years, if it’s a temporary situation where government and us can really compare the papers and say, ‘What do you find? What did we find?’

SUSAN So is their science wrong, is your science wrong, or is somebody out to get Fonterra?

THEO I know that with DCD, which was, by the way, not a food safety issue of the last—

SUSAN You say. Other people say differently, though. But do you think somebody’s out to get Fonterra and Anchor? Is that what this is about?

THEO No, but, sorry, on the food safety issue, and I know there’s a lot of speculation, but let’s go to the facts. DCD was not a food safety issue. That’s why at that time we decided to take time and to go out when we had all the facts. What happened this week is a food safety issue, in my opinion, although minute, but I couldn’t take the risk, yeah, so that’s why we went out straight away without having all the facts all available. But going back to your question, if we cannot advertise the Anchor brand for a longer period of time, it’s going to affect the brand, yes.

SUSAN How can you say that this week was minute, that the risk was minute?

THEO No, sorry. I’m not saying it’s minute. I’m saying the food safety risk is minute, yeah, because—

SUSAN But it’s a food safety risk around babies—

THEO I know. I know.

SUSAN Botulism – it could kill children.

THEO I know, and it was one in millions potential chance, because—

SUSAN But it was enough for you to recall it.

THEO Yeah, and that’s why I did it. That’s why without having all the information available, on Friday night we went out and we said, ‘We can’t take the risk, and we’re going to recall.’

SUSAN Sri Lanka – what we’re seeing unfolding today and it will go into the next few days – we’ve got melamine, we’ve had the DCD before, the botulism – your customers, other countries are losing faith in Fonterra, in New Zealand milk, aren’t they?

THEO But let’s get the facts clear.

SUSAN Well, they are, because this is what’s happened in Sri Lanka.

THEO No, no.

SUSAN There is a loss of faith in that brand that’s been there 50 years.

THEO But I come from China, and you’re referring to 2008 – the melamine. We were the whistle-blowers of a huge food-safety issue, and we still have a lot of credit for that.

SUSAN But answer my question, because what I’m asking you here is with all of that in the background, you no longer have a clean slate. I think we’re up to number three or four, however you want to count it, in food safety. Are your customers, are other countries like Sri Lanka losing faith in New Zealand, in Fonterra, in your brans?

THEO Our consumers and customers are not losing faith, because we did the right thing. Is there reputation damage—?

SUSAN How do you know that? How do you know that? The Prime Minister—

THEO Because I talked to them.

SUSAN The Prime Minister this morning— The Prime Minister of New Zealand this morning on the programme said, ‘The issue is what consumers think,’ and we don’t know what they think yet.

THEO We do know what they think, because we follow social media all the time. I have an updated report of social media in China yesterday, and authorities are backing us up by saying, ‘They did the right thing. Consumer perception in China at the moment is stable. Of course, there’s always, always a dent after such a week, and we have to repair it.

SUSAN So if there is no problem in China, which is what you’re trying to tell me, why is the Prime Minister of New Zealand changing his schedule to go to China to reassure the Chinese people and the Chinese government?

THEO Look, I went to China myself as well—

SUSAN No, no, answer the question. Why is our Prime Minister changing his schedule to go to China to do the job that you should have done?

THEO I think for the same reasons as I went to China – to have the conversation constant and open with local authorities. I went for customers and consumers. And I’m not saying nothing happened. I’m saying that the situation in China at this moment is stable, and people are saying, ‘They did the right thing.’ Of course, mistakes have been made. There will be a review. There will be an operational review from me. There will be a review from an independent committee of the board. There will be questions from ministers. I think there will be similar—

SUSAN So is the Prime Minister wasting him time? Is the Prime Minister wasting his time going to China?

THEO No. No, no.

SUSAN So there is a need for him to go to China?

THEO Because the relationship between New Zealand and China is so strong – so strong – and I think it’s a very good call of the Prime Minister to go, because it’s really about relationships and about having the facts on the table. And there’s a whole lot of subjectivity here, and I think Sri Lanka’s caused by the whole subjectivity around this issue.

SUSAN And okay, but how many other countries may feel this way because of the damage? I mean, Sri Lanka is the first cut we’re seeing of the damage, really, isn’t it? You’d acknowledge that?

THEO Yeah, but in other markets, in all the other markets in South-east Asia, the situation’s completely objective and stable.

SUSAN Is it?

THEO It is.

SUSAN Because your PR person told my producer that he has been dealing with calls from 15 to 20 countries’ media.

THEO Mm-hm.

SUSAN That means there’s publicity, and we know it’s international, and you’re telling me only one other country, Sri Lanka, is worried about our product?

THEO No. Look, where you’re talking about potential damage—

SUSAN I’m talking about the perception of risk. I’m sure— Talking about the perception that New Zealand products are no longer safe.

THEO Yeah, but the situation you’re referring to is in the recall. Of course, that’s—

SUSAN No, I’m talking the bigger picture now. I’m talking – we’ve had all these scares; yes, you may say melamine, you did the right thing. You will say you did the right thing on everything. The reality is Sri Lanka have had a brand like Anchor which has been there for 50 years. This is an international story. Other countries will be worried and will be looking at our products more firmly.

THEO Correct. Correct, but in the end, people will see that food safety is our first and highest ground. And that’s what we did with melamine – we were the whistle-blowers. And that’s what we did here. We went out straight away. When I got to know late, late on the 1st of August and identified where the risk was, we went out straight away, food safety risk, can’t take the risk, recall.

SUSAN So you’re telling me you’ve managed this pretty well, and, in fact, you think things are stable internationally?

THEO Look, there was— There was a lot of anxiety, and there’s—

SUSAN I think there still is.

THEO That’s for me, three buckets, really, of where we have to look. What happened – we pretty much know what happened at the manufacturing side, but why did it happen? There’s a question on if you find Clostridia, in my world in Europe, if you find Clostridia within the norms, you normally don’t test further, but here we went and tested further. It took a long time – why it take—?

SUSAN It took a long time. Why did it take so long?

THEO That’s a fair question. You will get answers, I promise. And then did we do a good job after the recall on traceability? Did we— was the 72 hours after the recall – was that properly managed? Same questions, and you will get answers.

SUSAN What’s 38 tonnes of whey worth to you? Which is basically the base— that was the basis of the botulism problem – what’s it worth to you?

THEO Now, look—

SUSAN A few dollars, a hundred thousand? I mean, just give me a dollar value. I’m just asking—

THEO You’re talking a thir—

SUSAN What’s it worth, yeah?

THEO A 38— 38 tonne times, you’re talking here, WPC-80, you’re talking about $7000— US dollars a tonne. But—

SUSAN So a couple of hundred thousand US dollars it is worth. So what do you think? So for a couple of hundred thousand US dollars – it may be quarter of million US dollars – that’s what this product was worth to you. What do you think it’s going to cost you? What is this going to cost you? It’s costing you already in Sri Lanka. How many tens of millions?

THEO The 38— The 38 tonnes—

SUSAN Yeah, the question is—

THEO Yeah, but let me briefly explain. The 38 tonnes – 20 tonnes went straight into—

SUSAN We know this. We know 20 tonnes went—

THEO So—

SUSAN I’m asking you what you think this $250,000 worth—

THEO It’s very early to answer that question, but I do know—

SUSAN I’ll ask it more simply. Is it tens of millions, or is it hundreds of millions?

THEO It will be tens of millions, because—

SUSAN Will it be—? Is it possible it will be hundreds of millions?

THEO No, I mean—

SUSAN No or yes?

THEO It’s too early—

SUSAN Is it possible it could be hundreds of millions?

THEO It’s tens of millions.

SUSAN And you’re confident about that? What’s it going to cost you for the Karicare brand? Because that brand is destroyed. Owned by a big French company, Danone. What do you think that will cost you?

THEO I mean, the Karicare brand – you’re saying it’s destroyed; I don’t think is destroyed. I mean, I was in constant contact with the CEO of Danone the whole week, yeah, on the Karicare brand and the situation here. Yes, there was misinformation that there was a total recall of the Karicare brand. That got corrected very fast. The recall is completed, and there have been a lot of calls on the consumer call line—

SUSAN Everyone I’ve spoken to wouldn’t use it anyhow. That’s— What is the damage to brand New Zealand. The Daily Mail – 100% brand manure. The Chinese are calling it a festering sore. Any idea what damage you’ve done to this country? Because as the Prime Minister said this morning, you are the poster child for New Zealand exporting.

THEO I know, and like I said before, the calls we have been making – we can focus on New Zealand and what we think here, but I’m focused as well on our markets, and the perception around New Zealand is still very strong. Very very strong.

SUSAN Have you considered resigning?

THEO I mean, that’s not for—

SUSAN Well, no, no, I’m asking you, Mr Spierings, if you have considered resigning.

THEO We are— We are a professional company. We have a board, and I do talk to my board, and—

SUSAN It’s a simple question. Yes or no – have you thought about resigning over this?

THEO No, not this week, because we have a job to do, and let other people judge how we did the job.

SUSAN The Chinese want to see some heads roll. Can you give me an assurance that heads will roll and not just the guy who did or didn’t clean the pipe?

THEO We will— Like I said, the investigation is manufacturing side – it’s the Clostridia identification and its traceability. And if we find real lapses in the system and mismanagement, there will be consequences, yes.

SUSAN Thank you for your time this morning.

THEO Okay.

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