On Friday Fonterra cut its predicted dividend range by 10 cents to 35c-45c a share this year.
And though it disagreed with the finding and was preparing to pay up, Fonterra did not ruled out challenging the order.
“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,” chief executive Theo Spierings said.
Danone, which ceased to be a Fonterra customer, had sought $500m after it had to recall baby formula from supermarket shelves. Fonterra has set aside $11 for Danone to cover the actual cost of recalling products.
Spiering said a precedent had been set with damages awarded outside the liability limits in the supply contract.
It used Fonterra products in its formula, as did seven other formula makers, and made the claim for losses it incurred of what Fonterra referred to as a precautionary recall of 38 tonnes of whey protein concentrate though it was more commonly known as the botulism scare or scandal. The saga was the result of an equipment cleaning error.
It was later found there had been no food safety risk.
“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,” Spierings said.
“We operate in a fast-changing and complex industry and will always prioritise food safety and quality in our commitment to be the world’s most trusted source of dairy nutrition.
“Fonterra is in a strong financial position and is able to meet the recall costs.”
The co-operative was reviewing the tribunal’s findings closely but recognised there were likely to be limited options for challenging the decision of an international arbitration, he said. Lawyers were studying the 300-page decision.
“Part of us would like to move on from this unfortunate experience,” chairman John Wilson said.
Danone said the arbitration outcome stressed the critical importance of food safety procedures and transparency.
It welcomed the decision as a guarantee the lessons from the crisis would not be forgotten.
“Danone considers that this arbitration underscores the merit of its legal actions against Fonterra, including to champion the highest standards of food safety across the industry.
“Danone believes that food companies and their suppliers can only work together through a solid relationship based on trust, transparency and accountability,” it said.
Fonterra supplier Tom Pow, from Whangarei, said it was very disappointing the problem happened and the settlement was an unfortunate cost farmers didn’t need.
“But sometimes these things happen in business,” Pow said.
Fonterra halted trading in its shared on Friday morning but they resumed trading at 1.55pm and gained a cent to $6.37.
Fonterra Shareholders’ Council chairman Duncan Coull said Friday was a tough day for the co-op and its farmer owners who would ultimately bear the cost.
“Our co-op has made significant strides since the 2013 incident in terms of strengthening its operational processes, culture and governance – as per the independent review process recommendations – and embedding them into our co-op’s functions and framework.”
The council was confident that was done to a high standard and Fonterra was well placed to become the world’s most trusted source of dairy nutrition.
“As tough as this outcome is, the lessons learned have enabled our co-op to emerge stronger and we now need to move forward together – proud of who we are, what we have achieve, and of our commitment to our values.”
