New Zealand's largest diary company Fonterra (ASX: FNF) has been rocked by a quality issue involving three batches of its whey protein concentrate. The affected whey contains a strain of Clostridium which has the potential to cause botulism. Amazingly, the contaminated whey was manufactured back in May 2012, but was only first identified as having a potential quality issue in March 2013 and only in recent days was the alarm raised.
The whey concentrate is used by Fonterra's customers in the manufacture of a number of products including infant formula, milk powder and sports drinks and with customers located in numerous countries, so the task faced by management to contain this issue is significant.
With the potential for customers and countries to halt use and importation of Fonterra's products, near term losses of revenue and earnings are very real.
The Australian listed units of Fonterra dropped over 7% in early trade following the announcement. Meanwhile shares in Fonterra's Australian-based competitors Bega Cheese (ASX: BGA) and Warrnambool Cheese & Butter Factory (ASX: WCB) — who could benefits from increased orders due to Fonterra's contamination problems — were up 2% and 3.5% respectively.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
