September 24, 2008

Scandal Overshadows Fonterra Result

By JANES, Andrew

FONTERRA announces its annual result and a fresh payout forecast for the current season today as it continues to deal with the fallout from the Chinese melamine scandal.

In May, the dairy co-op forecast a payout of $7.90 a kilogram of milk solids for last season and made an initial forecast of $7 for the 2008-09 season. Fonterra chairman Henry van der Heyden said early this month that farmers should brace themselves for a volatile milk market this season.

According to reports on the Chinese state-run TV channel CCTV, Fonterra's Chinese joint- venture partner SanLu began receiving consumer complaints about its products as far back as December last year.

Previously, Fonterra had said SanLu first started receiving complaints in March.

Whether senior Fonterra executives or directors eventually lose their jobs over the debacle remains to be seen. "I think dairy farmer shareholders will want blood," one dairy industry source said.

Fonterra Shareholders Council chairman Blue Read said farmers were waiting to see how the situation evolved. "I've no idea if people will lose their jobs."

However, Mr Read said the scandal might affect the upcoming Fonterra board elections.

Three directors -- Greg Gent, Earl Rattray and Jim van der Poel - - are required to seek re-election, with nominations for new directors due by Friday.

As well as the recent scandal, Fonterra was also forced by farmers to back down from its plan this year to list the co-op on the stock exchange.

The milk contamination scandal would not be the only issue that farmers took into account, Mr Read said. "But (the directors) will face a higher degree of scrutiny."

Fonterra said yesterday it was moving to correct a report on a Philippines news website that all of its products had been banned in the Philippines.

The report, on the website of media company Balita, suggested that the country's Bureau of Food and Drugs had banned all Fonterra products.

However, bureau director Leticia Barbara Gutierrez said the report was untrue and there was no such ban.

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