Fonterra

$1 billion wiped off Fonterra's value

Fonterra's food contamination scare has shaken the money markets, and wiped as much as $1 billion off the company's value on the stock market

Radio New Zealand,

5 August, 2013

The country's biggest company revealed three batches of whey protein concentrate, totalling 38 tonnes, are contaminated with the bacterium that can cause botulism, prompting product recalls and import bans in some countries.

New Zealand exported $12.5 billion of dairy products during 2012, which is about 27% of all merchandise exports and Fonterra accounts for most of that.

China comprises 21% of all New Zealand milk powder exports, while Russia accounts for 1%. The other countries affected by product recalls together account for 12%.

That was reflected in the reaction on the money markets - the dollar fell sharply initially - more than 1.5 cents, to US77.1 cents but has recovered slightly to about US77.7 cents.

On the sharemarket the unit price of the Fonterra's Shareholders Fund initally slumped 9%, wiping $60 million off its value, but it did reclaim some ground - about $45 million down - or down 42 cents to $6.70. It has since recovered to $6.68.

An analyst says the market needs further clarification on the crisis before it can acurately price units in the Shareholders' Fund.

The value of the entire company fell as much as $1 billion to $10.4 billion but also has reclaimed some lost ground.

But the fallout is much wider with Synlait intially down 4%, and A2 Corporation down 5%.

Trading in Fonterra shares accounted for half the number of shares changing hands on Monday morning but the overall benchmark NZX50 index is down .2%.

Radio New Zealand's economics correspondent Patrick O'Meara says more volatility is to be expected until more information is revealed.

"Particularly about what some of the affected countries are going to do. And let's not forget this is the second food safety issue for Fonterra just this year alone.

"Later this week, the markets seem to be interested in the the bi-monthly global dairy auction when that comes out. Will buyers want to play? That is going to be the big issue and whether prices hold or whether they fall will be a measure of confidence. Though New Zealand actually accounts for about a third of all globally traded dairy products so it may be difficult for some of these customers to switch away."