Kigoda Consulting

Tiger Brands should learn from Fonterra’s “watershed moment” on food safety

17 August 2018

Tiger Brands continues to suffer from the outbreak of listeria, which was identified in its products in March 2018. On 16 August, CFO Noel Doel said that “It is the most serious crisis we have faced. It has taken a lot of our time. It would be incorrect to say otherwise.” While Tiger Brands has recalled and destroyed 4,000 tons of products and closed four factories, it does not appear to have taken the major steps required to address the ongoing risks for food safety. Responsible investors should encourage Tiger Brands and other food processing companies to learn from New Zealand dairy company Fonterra, which experience a food safety breach in 2013.

Fonterra issued an alert to eight customers in August 2013 that Clostridium botulinum, which causes botulism, had potentially contaminated its supply chain. Fonterra’s customers, including Danone, issued recalls. Subsequent tests found that the contaminant was actually the non-toxic Clostridium sporogenes. In March 2014, Fonterra admitted to four violations of food safety regulations and was fined NZ$300,000 relating to a botulism scare in a batch of whey protein concentrate (WPC). An arbitration tribunal also ruled that Fonterra should pay Danone NZ$183m (US$125m) in compensation in relations to the August 2013 recall.

The Government Inquiry into the Whey Protein Concentrate Contamination Incident found, in November 2014, that in addition to the breaches of its risk management programme, Fonterra failed to advise the Ministry for Primary Industries and its customers timeously of the potential food safety incident. Contributing factors included unclear communication, a lack of adequate escalation procedures, a lack of an updated, well-rehearsed crisis management plan or coherent food incident plan, deficient tracing efforts and not implementing a food safety culture.

The inquiry described the incident as a “watershed moment” for Fonterra in realising that “food safety was the one thing without which it was impossible to achieve any other company priority”. Some of the changes that Fonterra made following the incident are instructive. Food safety was placed at the top of the board’s agenda and work began to instil a food safety culture from the top of the organisation. Management contracts were amended to include clauses relating to food safety and specific food safety KPIs set for plant managers. Systems for product identification, labelling and coding standards were improved, and traceability and recall protocols included in customer contracts. Crisis management coordination and communication were boosted and training exercises required to improve responses.

Fonterra’s cultural shift in food safety now arguably reflects best practice in the dairy sector. Similar behavioural changes, such as linking management contracts to food safety and setting specific food safety KPIs, should be encouraged across the food processing sector.

 

The Fonterra case study forms part of Kigoda Consulting’s report Milking it? An ESG Assessment of Emerging Market Dairy Companies, which is available for download here.

• Food safety