Fonterra and the botulism scare: it is all about orange and red flags

The saga of the Fonterra botulism scare over the last six weeks has damaged New Zealand’s international brand.  Fonterra has been unable to take a trick as they have stumbled from one misguided communication to another. The media have also failed badly in their analyses, through a general failure to understand the difference between orange and red flags.

Fonterra has still not communicated the timeline of events and decisions with any clarity, but the general picture is now becoming clear.  

It all started back in May 2012 when some plastic came loose in a whey concentrate dryer at the Hautapu plant near Hamilton. The risk was that this plastic had got smashed up and possibly melted within the dryer, and then mixed with the whey.

The only way to find out for sure was to hydrate the whey powder (which is soluble) and then filter out any solids.  For reasons not clear, Fonterra chose to do this using equipment that had not been used recently.  Unfortunately the equipment had not been properly cleaned.

Once hydrated and then re-dried, the product passed the mandatory bacterial tests, but did have a level somewhat higher than typical.

By this stage there should have been two orange flags but the Fonterra system recognised neither.  The first was that once the product had been reprocessed, then it should have been drafted away from human use and used for stock feed. The second orange flag was when the re-processed whey powder gave elevated but technically acceptable bacterial counts. Once again, this should have been enough to restrict its use to stock feed.

The next flag came in March 2013, when an Australian division of Fonterra re-tested some of the powder before using it as an ingredient. This time they found bacterial counts had further elevated. In all likelihood these levels were still below technically acceptable levels, but the fact that levels had risen in the powder would have been indicative of anaerobic bacteria being present.

Fonterra saw this as an orange flag but it should have been a red flag. All products processed from the Hautapu plant using the same production system should have been immediately removed from the supply chain and placed under bond. Instead, Fonterra decided only to do further tests.

It would seem that Fonterra first did these tests in-house. But at some time Fonterra decided to seek assistance from AgResearch (a Crown Research Institute). By then Fonterra would presumably have known that the bacteria were from the Clostridium genus, as that would be easy to identify.

The problem, however, is that some Clostridia are indicative of a food quality (spoilage) issue, whereas other Clostridia are potentially of major health significance.  The worst case scenario was that it was Clostridium botulinum. The most likely alternative was that it was the relatively benign Clostridium sporogenes.

Discriminating between sporogenes and botulinum is difficult. There is no quick laboratory test. Instead, it is necessary to culture the organisms and then feed them to mice. If the mice die then it is botulinum; if they don’t die it is sporogenes.

Even then, the results are not necessarily going to be clear cut. In any biological experiment, there is always random ‘noise’. In this case, that means that some mice fed the bacteria might die due to chance events unrelated to the bacteria. In science experiments, one always hopes the results will be clear cut – what is called ‘statistically significant’. But in real life it often does not work that way.

In this case, it would seem that some mice may have died but not enough to be sure. So AgResearch reported that it looked likely that there was botulinum present but they were still not sure.

At this stage Fonterra did see a red flag. The Government was notified and there was a product recall.

As events have turned out, it is now apparent that it was a false alarm. Further testing overseas has confirmed that in fact it was not botulinum.  However, great damage to Fonterra’s and New Zealand’s reputation occurred, with the recall being splashed globally in the news media, and particularly so in China  where many of Fonterra’s products are sold. In fact I am writing this from China, and I can confirm that it has very much come to the attention of Chinese consumers.

It will be interesting to see how this now plays out. Here in China there is no doubt that Danone in particular has suffered great damage, with their leading infant formula brand Dumex being particularly badly hit. (Dumex is the equivalent of ‘Karicare’ in New Zealand, with Karicare being marketed by  Danone’s  Nutricia subsidiary.)  .

Earlier this week, in a Shanghai supermarket, there was a message over the in-store radio every five minutes advising that the Fonterra food safety scare was actually a false alarm. But unofficial sources tell me that sales of the Dumex brand are still hugely affected, with up to 90% loss of sales. Consumers have moved to other brands and now have to be painstakingly won back. A Google search using Chinese characters for ‘poisonous’ and ‘milk powder’ and ‘Dumex’ produces over one million references.

If only Fonterra had seen the warning flags earlier on, then all of the damage could have been avoided. The products should have been removed from the supply chain before there was any risk of them getting anywhere near any consumers. If that had been done, then no public recall of products would have been needed.

Fonterra’s attempts to manage the crisis in the news media were woeful. Their key spokesman in those first few days blundered badly and paid for it a few days later when he tendered his resignation.  At the governance level, Fonterra’s Chair went missing in the first six days, leaving management to carry the burden. Presumably, this was one the advice of the Public Relations Department, but with the CEO overseas it was not a great look.

Subsequently, Fonterra has attempted to shed some of the blame by claiming that they received incorrect information from AgResearch. Fonterra has claimed that AgResearch reported a positive result for botilinum, whereas AgResearch claim they reported there was a likelihood of botulinum but that further testing was needed.

The waters have been further muddied with statements that AgResearch does not have international accreditation for botulinum testing. Well, that lack of accreditation is not surprising. Milk products are not tested for botulinum as a standard procedure.

Ideally the test should be done with three groups of mice. One third would be given a feed free of bacteria. Another third would be given the suspected feed. And the third group would be given botulinum. But botulinum toxin is only held under very high security, and there are no supplies held in NZ.

Fonterra would have known all of these things – or at least they should have known. If they didn’t know, then this illustrates the importance of all executives in a food industry having some understanding of food quality and microbial science.

The news media have also shown a disappointing level of understanding of the realities of scientific testing and the associated issues of orange flags and red flags.  Some media have got it completely wrong,  even suggesting that the recall was unnecessary. That attitude shows a complete misunderstanding of the realities of food safety, and the need to act on orange flags.

However, the news media are not completely to blame as it is very difficult for them to get information. I am told by journalists who have contacted me that all the food safety experts in Government have been gagged from providing any commentary.

This is not the first time that Fonterra has got food quality issues badly wrong. Back in 2008, they were implicated in the San Lu scandal where babies died from drinking milk laced with melamine. Of course Fonterra did not know what was happening; but they should have known.

When Fonterra took a 43% shareholding in San Lu, the Fonterra CEO talked of introducing financial discipline within San Lu. What he should have been thinking about was introducing food quality discipline within San Lu.   Fonterra escaped from the San Lu saga with its reputation largely intact – in fact in China, both Fonterra and New Zealand received praise for the way they brought it to the attention of the Chinese Central Government when the provincial officials refused to act.

However, at a system level, Fonterra clearly failed to learn some key lessons. It is only now, since the latest saga and in the last month, that Fonterra has appointed a group Director of Food Quality and Safety reporting directly to the CEO.

So far, only one of the four investigations of this saga has delivered a report. Or to be more precise, it would seem that it has actually only been a press release rather than a report that has been delivered. That press release related to an operational report commissioned by the CEO.

There is an irony that Fonterra’s milk powder is still flowing into China unimpeded, and prices for these bulk products have not suffered.  It is the consumer brands that are not owned by Fonterra that have suffered.

One of the interesting issues going forward will be whether legal action is now undertaken, and if so, as to who sues who.  Fonterra have indicated they are ‘considering their position’ in relation to AgResearch, but I doubt that they will sue. However, I understand that Danone are also considering their position.  On the surface, it would seem that they do have cause to be aggrieved. Their unhappiness is not that Fonterra delivered them a product containing Clostridium botulinum. Indeed Fonterra did not deliver such a product. Their unhappiness will be that Fonterra so bungled the management of the scare that their infant formula market in China has been seriously damaged.

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About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Agribusiness, China, Dairy, Fonterra. Bookmark the permalink.

2 Responses to Fonterra and the botulism scare: it is all about orange and red flags

  1. Pingback: Orange and red flags ignored | Homepaddock

  2. Pingback: Changing the Culture at Fonterra | Posts from Keith Woodford

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