Fonterra has been fined $300,000 for causing a food-safety scare that damaged New Zealand's international reputation and saw products rejected from several markets.
In the Wellington District Court today, the company faced up to charges related to an incident last August when it warned that some of its products, used widely in infant formula, contained bacteria that could cause botulism, a rare and severe form of food poisoning.
The incident caused an international scare, expecially in China, with Fonterra unable to confirm for several days where the products, which had been produced more than a year earlier, were around the world.
Further testing showed that the risk of botulism never existed, although the false alarm prompted a review of New Zealand's food-safety system.
Prime Minister John Key last month travelled to China to deliver the results of the inquiry.
Problems dated back to May 2012, when Fonterra reworked some of its concentrated whey using temporary pipes and hoses at the Hautapu plant in Waikato in a way not approved by regulators, which increased the risk of bacteria.
The Ministry for Primary Industries brought four charges under the Animal Products Act related to producing dairy product not in accordance with its risk-management programme, exporting products that did not meet animal product standards and how long it took to inform the ministry and AssureQuality of problems.
The charges carried a maximum fine of $500,000, although Judge Peter Hobbs said Fonterra deserved a discount for its early guilty plea, co-operation with the regulator and steps it had taken to improve its procedures since the incident, reducing the fine to $253,000.
He said he was required to take into account the financial capacity of the defendant to pay the fine. Typically, this reduced the fine, although he said there was no dispute that Fonterra, New Zealand's largest company, had the capacity to pay more. He raised the fine to $300,000 to reflect the fact that the lower fine could dilute its impact as a deterrent.
"There can be no doubt the flawed rework process and the crisis that followed had widespread ramifications," the judge said.
"New Zealand's reputation for high-quality, safe dairy products was shaken, as was confidence in New Zealand's overall food-safety regulatory scheme.
"Access to a number of foreign markets was impacted. There has inevitably been downstream financial implications for those involved in the supply of dairy products associated with Fonterra.
"I accept, however, that the offending resulted from carelessness and a failure to follow proper procedures, rather than deliberate actions on the part of the defendant company.
"Clearly, things should have been done better. Lessons are to be learnt as a result of the crisis and the defendant's failures."
Chapman Tripp partner Adam Ross, representing Fonterra, spoke for only three minutes.
"Fonterra takes the event very seriously," he said.
An affidavit from the company provided to the court "indicates the lengths which Fonterra has gone to examine itself, understand what happened and take steps to make sure it doesn't happen again".
Crown prosecutor Grant Burston said there was a need to send a deterrent to Fonterra for the damage it did to New Zealand's international reputation.
Burston's colleague, Simon Barr, read part of the 26-page summary of facts presented with the charges.
"New Zealand's reputation and image for quality and safe dairy products in key foreign markets was damaged by the Fonterra ... incident," Barr said.
"The confidence of those markets in the effectiveness of New Zealand's overall food-safety regulatory system was also shaken."
Fonterra declined to comment in court but issued a short statement on the fine, saying it would not contest the level.
"Fonterra had already accepted responsibility for the allegations made in the charges, and we respect the sentencing decision made today," spokeswoman Maury Leyland said.
- Fairfax Media