Fonterra could face legal challenges from Danone over infant formula recall

Fonterra, a New Zealand-based multinational dairy co-operative, has said that it may face legal challenges from French dairy firm Danone, following losses from a recent infant formula recall.

A botulism alarm by Fonterra in August triggered a recall of certain infant formula products in more than seven countries; however, further investigation revealed the presence of clostridium sporogenes, which does not cause botulism.

Danone has asked for full compensation of €350m from the new Zealand firm for losses incurred due to the recall in Asia and New Zealand.

In October, the firms initiated talks to reach a commercial solution; however, the issue could end up in the courts.

Speaking at Fonterra’s shareholder fund annual meeting, CEO Theo Spierings said that the co-operative has worked on a commercial solution for months.

"That appears to be a route that is not working out."

Spierings was quoted by Reuters as saying, "We’re still in talks (with Danone).

"I put a commercial proposition on the table at the end of October and I haven’t heard back on that proposition.

"If their counterproposal is commercial, I would of course entertain a commercial discussion. If their reply is legal, then we would have a different discussion."

In October, the French firm stated that recovery from the infant formula recall, which affected its sales, profitability and free cash flow goals for 2013, was taking longer than expected.

Fonterra has put aside NZ$14m ($11.38m) to manage claims related to the contamination scare, and has already reached commercial agreements with six of the eight recall-affected firms.

Spierings said that the company is close to reaching a commercial deal with a nutritional company affected by the scare.

The deal would include extending a contract with the unidentified firm from two to ten years, he added.