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Danone Nutricia needs 18 months to recover from botulism scare, CEO Tap says

Wednesday 17th September 2014

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Danone Nutricia chief executive Corine Tap said it would take the infant formula manufacturer 18 months to recover from the adverse effects of the Fonterra Cooperative Group botulism scare.

The New Zealand subsidiary of the French food giant posted a 97 per cent profit drop in 2013 to $1.99 million after sales were disrupted in August when it had to recall infant formula from several countries.

Danone Nutricia is suing Fonterra for alleged breaches of the Fair Trading Act in the High Court, claiming the recall cost it 350 million euro. It is currently appealing a July decision by Justice Geoff Venning to grant Fonterra a temporary stay of proceedings while international arbitration is concluded. That appeal is due to be heard next month.

Tap said today that they were making good progress after being hit hard by the false alarm.

“It has been very hard work and the team is doing an amazing job but we are not back to where we were before the crisis,” she said.

Prime Minister John Key today marked the amalgamation of Danone Nutricia with the two Kiwi dairy processing companies it bought in April – the Sutton Group and Gardians. Auckland’s Sutton Group was best known for its infant formula manufacturing while Gardians operates a milk powder spray drying plant in Balclutha.

The Nutricia story started more than a century ago in 1907 when Truby King developed the first powdered infant formula he called Karitane. The Nutricia brand is New Zealand’s largest selling infant formula. The town of Karitane is based close to Balclutha and Tap said it was fitting the brand had come back to the region.

Danone Nutricia cancelled its supply contract with Fonterra in the wake of the botulism scandal and had been sourcing milk from new suppliers in New Zealand and Australia and doing the spray drying in Northern Ireland.

Tap said the Sutton Group and Gardian deal, the price of which has not been disclosed, provided it with access to a large milk drying facility and a long-term supply of fresh milk. It will also add an infant formula blending and packing facility to the company’s New Zealand operations.

“We intend on doubling the capacity of the plants to meet the considerable growth expectations. By merging the two businesses, we have estimated an extra 60,000 cows will be needed to meet demand by 2020,” Tap said. She wouldn’t say how much that extra investment would cost but said it was “significant”.

The acquisition included about 200 employees across the two new sites who have all been employed by Danone Nutricia.

The amalgamated firm will continue to supply products to Australia and New Zealand and export to China and South East Asia where the company expects strong regional growth.

Key said New Zealand supplied around 80 per cent of China’s infant formula market and he expected there would be further consolidation in the industry with the larger players with proven quality standards likely to succeed.


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