In August 2013, Fonterra issued a precautionary recall of one of its products, WPC80, which is a form of whey protein.

A tribunal acting in arbitration with Danone on claims arising from the precautionary recall has determined that Fonterra must pay €105m in recall costs sustained by Danone.

While the payout will have no impact on the forecasted farmgate price, it has implications for future earnings and Fonterra has revised its forecast earnings per share range for the 2017/2018 financial year to 35 to 45 cent, down from 45c to 55c.

Fonterra CEO Theo Spierings said: “We are disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business.”

It later emerged that the product would not have harmed the health of consumers, and an extensive review was carried out by Fonterra and the New Zealand government.

An independent inquiry was also commissioned by the Fonterra board of directors and found that the company had acted in the best interests of its consumers.

“The decision to invoke a precautionary recall was based on technical information obtained from a third party, which later turned out to be incorrect.

“While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems.

“Fonterra is in a strong financial position and is able to meet the recall costs,” concluded Mr Spierings.

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