By Lucy Craymer
WELLINGTON, New Zealand--New Zealand dairy giant Fonterra
Co-Operative Group Ltd. said it would plead guilty to charges laid
by the government following a recall of baby-milk products last
year that tarnished the country's reputation as a safe supplier of
food.
Fonterra Ltd., a wholly-owned unit that manufacturers raw milk
products for export, faces four charges including exporting
products that failed to meet relevant food-safety standards. It was
also charged with failing to notify government officials as soon as
it discovered a potentially deadly bacteria in some of its
products.
The New Zealand dairy giant warned last August that some of its
products might contain clostridium botulinum, which can cause
botulism. The food-safety scare--ultimately a false
alarm--triggered a global recall of hundreds of thousands of cans
of baby formula across Asia. It also led to a breakdown in
relations with French company Danone SA, which relied on Fonterra
ingredients for the supply of baby formula in the rapidly-growing
and highly-profitable Chinese market.
Danone in January said it would stop working with the supplier
unless it can secure better food-safety guarantees and is taking
separate legal action via an international arbitration panel in
Singapore and New Zealand's High Court after failing to reach a
compensation agreement with Fonterra.
The latest charges, laid in the Wellington District Court on
Wednesday, carry a maximum penalty of half a million New Zealand
dollars (US$425,000).
"We have accepted all four charges," Fonterra executive Maury
Leyland said in a statement Thursday. "Fonterra is committed to
complying with New Zealand's food safety and quality regulations,
and being held accountable if it does not," she added.
Last year's scare highlighted the ripple effect that one
incident can have in a global food chain increasingly concentrated
in the hands of a few companies. The Fonterra cooperative controls
one third of the world's dairy exports. Besides its ingredients in
baby milk, cheeses and yogurts, Fonterra also sells its own Anchor
brand.
The dairy industry also forms the backbone of New Zealand's
agriculture-rich economy, accounting for around a quarter of annual
exports. New Zealand has benefited from a strong rise in dairy
prices in recent times, stoked by growing demand from China's
middle classes for dairy products, which have pushed the country's
terms-of-trade to a 40-year high.
In a sign of the industry's importance to the small island
nation, New Zealand Prime Minister John Key is due to travel to
China next week to personally present the findings of an
independent review of the country's food-safety system undertaken
following the Fonterra food scare.
Write to Lucy Craymer at Lucy.Craymer@wsj.com
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