Fonterra drug mystery could hurt brand
The alleged discovery of drugs in a Fonterra milk powder container in Algeria could temporarily hurt its brand but is a far cry from the Sanlu scandal which cost the company dearly in 2008, commentators say.
The dairy giant and New Zealand Customs are investigating reports a New Zealand shipping container owned by Fonterra was seized in Algeria after 165 kilograms of cocaine or heroin were discovered inside.
Dairy industry expert and consultant Peter Fraser said Fonterra controlled its supply chain very tightly, and it appeared the dairy giant had "just been unlucky".
The incident was "absolutely not" on par with the Sanlu scandal – in which the partly Fonterra-owned Chinese company added melamine to infant formula, killing six infants and making thousands more sick with kidney problems.
It hurt Fonterra's international reputation and cost its shareholders around $200 million.
"With Sanlu the product had actually been taken by consumers. Whereas in this case my understanding is they've found it on the wharf, it hasn't been distributed, and it hasn't been mixed with the [milk] powder."
Wayne Attwell, brand strategist at Bold Horizons, said Fonterra would get international exposure for the wrong reasons, but the impact on its image would probably be shortlived once it was proven Fonterra was in the clear – as seemed likely.
"After the melamine scandal it's just another negative mark against them. It's an unfortunate coincidence but long-term I don't think it will do any major damage."
A Fonterra spokeswoman said last night it was yet to confirm the report, and was waiting to hear from the Algerian authorities.
Fonterra adhered to strict security measures and all its containers left New Zealand with security seals, she said.
The company has a branch office with five staff in Algeria, which the New Zealand Dairy Exporter Magazine reported was one of Fonterra's largest country markets in Africa and the Middle East.
The powdered milk had been imported by ONIL, a nationally-owned company that dominates the market there, the Australian Associated Press reported.
Algeria is New Zealand's 29th largest export market.
The value of local exports to Algeria totalled $500 million in 2011. Milk powder exports – most of if not all of which were through Fonterra – accounted for $396.4 m or 79 per cent, while exports of butter and dairy spreads and cheese reached $101.5m in value.
In contrast, the value of imports from Algeria for 2011 totalled just $3m.
A spokeswoman for the Foreign Affairs and Trade Ministry said the two countries did not have a government to government trade agreement.
Fonterra is part of Customs' Secure Exports Scheme, under which exporters commit to protect their goods against tampering, sabotage and smuggling from the point of packing containers to delivery at the point of export shipment.
In return they can qualify for reduced export fees and border clearance privileges where applicable, and are less likely to have shipments disrupted by security alerts.
A Customs spokeswoman said it would not comment on Fonterra's status in the scheme while the investigation was underway.
ALGERIA: Quick Facts
■ Algeria, in North Africa, has a population of more than 37 million.
■ It is the 10th largest country in the world by area, covering about 2.4 million square kilometres.
■ Ruled for more than a century by France, it gained independence in 1962. It has a violent political history, with more than 100,000 people killed in fighting between the army and Islamist militants between 1992 and 1998.
■ Algeria has large oil and gas reserves, and energy exports are the foundation of its economy.
Sources: CIA and BBC.