Product Safety Failure and Restoring Reputation Across Markets: Fonterra's Management of the 2013 Bacterial Contamination Crisis

Abstract

Modern distribution systems often stretch beyond national borders such that a highly-visible product failure in a single country may negatively influence the reputation and market share of all identifiable supply chain members–even those that are blameless–in multiple countries, especially when the product is related to food safety. This study considers how Fonterra's response to its 2013 bacterial contamination crisis influenced its own reputation and that of the New Zealand dairy milk industry. It first traces how the crisis started in March 2013 and how it ended in August when investigations showed that the bacteria found did not cause botulism, a fatal disease that attacks the nervous system. It generally appears that Fonterra's initial response was unpersuasive but, over time, it stepped up its crisis management efforts.

Keywords:

• China
• crisis management
• Fonterra
• food safety
• milk contamination
• New Zealand
• reputation management
• Sanlu
• supply chain safety

ACKNOWLEDGMENTS

The author thanks Benjamin Ho, Zhang Fan, Ong Ying Kai, and Shannon Rose Chau for their research assistance provided in the development of this article.

Notes

1 The New Zealand Herald is the largest circulating newspaper in New Zealand with a strong emphasis on business. It reaches an average daily readership of 208,000 and its weekend edition, the Weekend Herald, remains by far the most-read and best-selling newspaper in the country (Rupar, 2006). China Daily is the sole national and official English-language newspaper in China with an average daily circulation of 300,000. It provides reliable and representative access to the overall approach that the Chinese press takes to cover news events (Stevenson, 1994). The New York Times is the “paper of record” (Zelizer, 2002) in the United States. It influences national and international narratives and discussion (Manoff, 1985). The Straits Times is the newspaper of record in Singapore. It has an average daily circulation of 410,000 (Sim, 2014).