Discuss About The Shifting Goalposts On Environmental Issues

Fonterra’s Sustainability Strategy

Discuss About The Shifting Goalposts On Environmental Issues.

 Fonterra is a global dairy nutrition company, it is owned by 10 thousand farmers and their families with roots in New Zealand. Fundamental beliefs in the ability of the dairy milk to make a difference provide it with power. The sustainability strategy is the core of its cooperative, it includes sustainability of the strategy, dairying, operations and consumption (Fonterra Co-operative Group Limited, 2018a). The company is committed to providing dairy farming for people around the globe. The company has been dairy farming for over a century, in the current time its products are found in every family home (Fonterra Co-operative Group Limited, 2018b).

 Australia is the biggest market to Fonterra outside New Zealand. The company direct markets include Indonesia, Malaysia and Sri Lanka. The dairy demand in china the world’s largest population country is expected to double in the next ten years. The company offers dairy ingredients to many leading food companies (Fonterra Co-operative Group Limited, 2018c). The company has a very well documented ethical guide ‘The Way We Work – Code of Business Conduct’, but it has faced a severe crisis caused by the WPC80 incident. The following section provides an analysis of the Fonterra ethical challenge, organizational expectations, current ethical behavior, stakeholders’ interest, strategic options and assessment and recommendations

 There are environmental costs from the dairy industry, they include the cleaned and uncleaned pollution according to the environmental standards. The cost of clean-up effect is much higher than the cost of not polluting the environment, including the economic, social and environmental costs in New Zealand (Foote, Joy, & Death, 2015). The ministry of environment in New Zealand gives high attention to the problem of water pollution and devote much care about the accepted levels of water pollution. The accepted standard to protect the freshwater ecosystem in Australia is less than half a milligram – 0.44 mg/l – of nitrate-nitrogen/liter of water. The ministry of environment in New Zealand allows the level to be set at 6.9 mg/l which represents 15 times the Anzac quality guidelines (Joy, 2017).

 The product harm crisis is a public incidence in which the product is found to be dangerous and could be disastrous to the organization. It often results in product recall, this was the case of Fonterra milk crisis in New Zealand in 2013. The literature illustrates the existence of a significant relationship between the consumer moral, expectations and loyalty and the crisis. The product harm usually involves ethical dimension that affects the human emotions towards the organization. These emotions are the main driver of the consumer moral behavior (Samaraweera, Li, & Qing, 2014). Fonterra milk has caused an extraordinary series of events during the period (1 February 2012 and 2 August 2013) in New Zealand. The crises started when Fonterra suspected whey protein concentrate (WPC80) produced at one of its manufacturing sites contained pieces of plastic. The main cause for this was a lens of a torch sucked into the processing machine. Also, it has discovered a non-standard transfer pipe or flexible hoses used in the reworking or both of them that is used in production.

Fonterra’s Global Operations

These unethical activities led the company to do more investigations until it has reported to the ministry for primary industries that there is a confirmed Clostridium botulinum (C. botulinum) in the WPC80 which can cause botulism.

A big challenge to Fonterra was represented in the actions that the ministry has taken to prevent any possible harm to people’s health. The ministry used its legal rights to warn the consumers of using a certain infant formula products and Fonterra recalled the WPC80 in New Zealand and overseas and Danone subsidiary Nutricia also did the same. No cases of illness related to the consumption of the affected product were detected. Another challenge represented in closing the entry of certain New Zealand dairy products to some countries, others initiated product testing or announced a product recall. The government has established terms of reference for the requirements of the dairy food safety that is consistent with the principles of the international risk management (Government of New Zealand, 2014).

 Fonterra has a responsibility towards its stakeholders, including, the employees, suppliers, society and the environment, they are discussed according to the Government of New Zealand (2014), as follows:

• Regarding the employees, the management of Fonterra did not seek the assistance of the senior managers in the organization as many involved individuals could not solve the problem. The employees who considered the level of danger that could harm infants were worried about the future of their jobs. Employees did not feel safe at the workplace and could not decide whether they will be able to sustain their career.
• The suppliers are irresponsible about the problem, as they follow Fonterra guidelines and the company code of ethics. They would prefer to work with a stable company that follows the enforced ethical guidelines in order to keep a good reputation in the marketplace. No successful supplier would be comfortable to work with a company that caused an international instability due to an ethical issue.
• The society, the human emotions towards the organization is severely affected and the company lost loyal customers in different countries. People have the right to feel afraid of the company products as it directly harms their infants who could be affected by many diseases (Samaraweera, Li, & Qing, 2014).
• Shareholders: The environment, economic and social and environmental impact in New Zealand were very high (Foote, Joy, & Death, 2015). Shareholders have to be worried about their investments in Fonterra as the ethical dilemma of the infant milk has a big impact on the company reputation. Investors would rather prefer to sell their shares and invest in a more successful company.

 The company expects that its suppliers respond and support its ethical standards indicated in the code of practice in relation to the health and safety at workplace, environment, economic sustainability, fair pay and workers’ conditions. These requirements comply with the international labor organization and ethical trading initiative. Suppliers and other contractors are expected to express their readiness and intent to comply with the code of ethics and the subsidiaries are required to ask their suppliers for the same. The suppliers are expected to use a proactive approach towards maintaining the safety standards, health and the environment also the occupational health management. It is important to monitor and evaluate the progress towards the health and safety targets to assure they are achieved within the required time (Fonterra Co-operative Group Limited, 2017). According to Collins (2009) and Hodder, Trainor, & Heida (2015), from the egoism perspective, the suppliers’ actions are closely related to Fonterra ethical standards and they do the right actions.           

 The Fonterra ethical policy is applied to all of its global operations, including the not fully owned subsidiaries, it provides a parameter to its employees in situations related to ethical behavior. It offers a guide in cases of conflict of interest situations. This policy is supposed to act as a guide to the organization towards honesty and integrity in all of the company’s business practices. This policy is applicable for all of the company stakeholders, including the third party. Fonterra values are referred to as ‘The Way We Work – Code of Business Conduct’. If any conflicting ethical issue exists, employees can discuss them with their direct manager, the HR department or contact The Way We Work Hotline. Conflict of interest happens when a stakeholder acts against the organization’s best interest. These cases are recorded in the Conflict of Interest (COI) Register by the individual who concerned it and should be registered manually (Fonterra Co-operative Group, 2018). According to Collins (2009) and Hodder, Trainor, & Heida (2015), ‘The Way We Work – Code of Business Conduct’ of the company reflects the egoism of the company and the way it expects stakeholders to respond to it.

Fonterra’s Ethical Challenge

 Fonterra’s Code of Business Conduct “The Way We Work” conducting is created to assure conducting business effectively and efficiently and gain a reputation for dignity and honesty. The company devotes its efforts to ensure an agreed level of sustainability, including the poor working conditions and the environmental issues, especially in the developing countries. The company is highly committed to upholding the human rights, environmental protection and maintaining fair working conditions. It is also committed to its suppliers to improve their labor conditions and environmental practices (Fonterra Co-operative Group Limited, 2017).

 Fonterra values articulate how it acts, the company focuses on the cooperative spirit, doing what is right to do, exceed the challenge boundaries by monitoring the customer expectations and finally make it happen through the delivery of exceptional results (Fonterra Co-operative Group, 2016).

 The dairy industry is extensively depending on the two- pond treatment systems that remove the carbon and enhance the gaseous removal of the nitrogen. The nutrient removal is done through a series of transformations and more sophisticated process than the two- pond treatment systems (DairyNZ Limited, 2015). The dairy farms have a liquid waste stream from the milking sheds and its related yards generally referred to as effluent. This milking sheds and yards are mixed with the wash down water used to clean the waste from these areas. The effluent contains dissolved nutrients, organic matter and salt. Large quantities of water should not be thrown in the effluent. The effluent should be managed through continuous application systems or treatment and storage system. The continuous application systems have limited storage that relies on the collection of the effluent twice daily after the milking process. It is advantaged for its low cost for the gravity flow system, but disadvantaged for the high capital cost for the pump and tanker system. The second way of effluent management is the treatment and storage systems. It employs single or multiple ponds to treat the daily inflow of effluent and to store the liquid and solid effluent. This system is advantaged for its freedom from the requirement of daily attention and it offers a recycling effluent for cleaning yard (The State of Queensland, 2013). Fonterra rules in relation to effluent state that animals should not eat materials that contain milk with toxins or any harmful ingredients, ruminant protein and materials grown on land treated or irrigated with meat waste (DairyNZ Limited, 2015). According to Collins (2009) and Hodder, Trainor, & Heida (2015), The cultural relativism, the  effluent management systems should be designed and operated according to the  national culture, mainly the laws to be considered an efficient system.

Environmental Costs of the Dairy Industry

 Nitrogen and phosphorus are essential to plant growth. Nitrogen is present in all living cells, it is a chemical element that has a major effect on the plant growth and quality. Nitrogen is converted in the soil to become nitrate, which has a negative effect on the environment.  The changing effect of nutrient management should be considered on the level of the farm system, the business goals and the regulatory requirements. Coping with the regulatory requirements is expensive (DairyNZ Limited, 2013).  Nitrogen fertilizers are critical to the productivity of farm grains. It represents a major input and operating cost for the dairy industry in New Zealand as there is a significant difference in the variability in the productivity gains from it and the economic effect is usually measured on the level of the whole production system (Gourley et al., 2014).  Fonterra has a nitrogen recording program, the company depends on nitrogen in planting crops used to feed the animals. The company manages nitrogen for maximum profitability and lowering the environmental impact. The farmers work towards nitrogen loss commitments under Fonterra Sustainable Dairying (Fonterra Cooperative Group Limited, 2016). According to Collins (2009) and Hodder, Trainor, & Heida (2015), nitrogen should be managed according to deontology. People should be treated in the same way Fonterra wants to be treated and their right is to live in a healthy environment.

 New Zealand dairy industry is concerned with the water quality, political and institutional solutions are implemented to deal there with concerns. Increased dairying results in increased rates of nitrate and phosphate in the waterways. There are different factors that affect the waterway management, including the climate. The central government has to provide implementation guidelines to provide certainty to all stakeholders. The regional councils have to focus on the waterways management within their regions and design the entire water management systems (New Zealand Institute of Economic Research, 2012).

 About 80% of the waterways in New Zealand are protected by fencing and 65% of them are protected by vegetation (DairyNZ, 2015). All of the dairy companies use the GIS mapping to record the farm boundaries and the waterway protection status (Shaw et al., 2017). Fonterra continuously progresses on stock exclusion from waterways. 97.4% of the defined waterways on mapped Fonterra were cleaned. It managed to fence 2,441 kilometers to maintain the water quality (Fonterra Cooperative Group Limited, 2016).

According to Joy (2017), wasted water issue does not exist in reality. This is because the rivers and lakes have evolved over millenniums due to the natural water flows. The taken water finds its way back to waterways in other states.

Responsibility towards Stakeholders

There are three strategic options as follows:

First: Train farmers on waste management

Fonterra has to provide the suitable training to the farmers to allow them to know the best practices. Training will assist them in following the ethical guidelines. Through training, farmers could eliminate the dirty draining and educate how to deal with its negative impact on the environment.

Second: Punish farmers who disobey code of practice

Fonterra has the right to punish farmers who do not follow its code of practice. Punishment could take the form of financial compensation to be paid or it could be to stop dealing with the guilty farmers for a period of time until they manage not to pollute the environment.

Third: Hire external inspectors to check the farmer

Fonterra could decide to hire inspectors to assure that farmers follow the guiding ethics. Inspection is expected to limit the occurrence of dirty draining. It is a costly option for the company, but it is expected to yield good results.

According to the mentioned strategies, Fonterra has five options to select among them as follows:

Option 1: This option falls under the categories of Egoism, utilitarianism and deontology. This option is expected to benefit the company image, the farmers and the stakeholders. It is expected to benefit the farmers who only the farmers who cause a dirty drain. It is not expected to impact the social group or their culture.

Option 2: This option falls under the categories of Egoism and social group relativism. It is expected to impact the farmers who caused the dirty draining directly and to affect the attitude of other farmers who followed the ethics to be more cautious not to make any mistake in the future. The stakeholders, the law and everyone will not be affected by the punishment.

Option 3: This option is expected to be the best option, as it guarantees to fulfill the five proposed dimensions by Colin. It will assure no dirty draining by farmers, following Fonterra ethics and will be applied to all farmers within the social group. Also, the opinions of the local advisors will be considered, will maintain a better relationship with the stakeholders and assure that the environment will not be negatively impacted.

Fonterra failure to report the problem either in a timely or effective manner to the higher management levels inside the company or the regulatory bodies has caused the WPC80 incident (Government of New Zealand, 2014). Also, it has to keep managing the dirty dairying including, the Fonterra, nitrogen and waterways to assure sustainability on the strategic, social and environmental levels. Fonterra is recommended to use option 3 of the hiring external inspectors to check the farmers. This option takes the first priority as it falls under the five categories of Colin’s theory.
Conclusions

Fonterra’s Code of Business Conduct

The Fonterra crisis caused by the WPC80 incident was not declared by the company. Fonterra has a responsibility towards its stakeholders, including, the government, the consumers, subsidiaries and staff. It did not inform the ministry or the Asure Quality of the commissioned C. botulinum, which might have assisted Fonterra with guidance about the testing process. The Fonterra ethical policy is applied to all of its global operations, including the not fully owned subsidiaries, it provides a parameter to its employees in situations related to ethical behavior. It offers a guide in cases of conflict of interest situations. This policy is applicable for all of the company stakeholders, including the third party. Fonterra is recommended to utilize the ethical strategies, as its operating globally and its activities have implications to individuals, societies, the environment and the human being.

References

DairyNZ. (2015). Dairy farm practicies and management report. New Zealand: DairyNZ.

DairyNZ Limited. (2013). Nutrient management on your dairy farm. New Zealand: DairyNZ Limited.

DairyNZ Limited. (2015, March). Effluent technical note: Dairy effluent treatment systems. Retrieved from DairyNZ Limited: https://www.dairynz.co.nz/media/2150124/dairy-effluent-treatment-systems-technote.pdf

Fonterra Co-operative Group. (2016, December). The way we work: Code of business conduce. Retrieved from Fonterra Co-operative Group: https://www.fonterra.com/content/dam/fonterra-public-website/pdf/policies/The_Way_We_Work_(Code_of_Business_Conduct)_December_2016.pdf

Fonterra Co-operative Group. (2018, May 07). Fonterra Group ethical behaviour policy. Retrieved from Fonterra Co-operative Group: https://www.fonterra.com/content/dam/fonterra-public-website/pdf/policies/Fonterra_Group_Ethical_Behaviour_Policy_External.pdf

Fonterra Co-operative Group Limited. (2017, May 07). Fonterra supplier sustainability code of practice. Retrieved from Fonterra Co-operative Group Limited: https://www.fonterra.com/content/dam/fonterra-public-website/pdf/FONTERRA_SUPPLIER_SUSTAINABILITY_CODE_OF_PRACTICE_V1_1_2017.pdf

Fonterra Cooperative Group Limited. (2016). Annual review. New Zealand: Fonterra Cooperative Group Limited.

Fonterra Co-operative Group Limited. (2018a, May 07). About us. Retrieved from Fonterra Co-operative Group Limited: https://www.fonterra.com/nz/en/about-us.html

Fonterra Co-operative Group Limited. (2018b, May 07). What we stand for. Retrieved from Fonterra Co-operative Group Limited: https://www.fonterra.com/nz/en/what-we-stand-for.html

Fonterra Co-operative Group Limited. (2018c, May 07). Our markets. Retrieved from Fonterra Co-operative Group Limited: https://www.fonterra.com/nz/en/our-markets.html

Foote, K., Joy, M., & Death, R. (2015). New Zealand dairy farming: Milking our environment for All its worth. Environmental Management, 56(3), 709-720.

Government of New Zealand. (2014). The WPC80 incident: causes and responses. New Zealand: Government Inquiry into the Whey Protein Concentrate Contamination Incident.

Joy, M. (2017, January 11). ‘Agency capture’ shifting goalposts on environmental issues. Retrieved from Stuff Limited: https://www.stuff.co.nz/environment/88264980/mike-joy-agency-capture-shifting-goalposts-on-environmental-issues

New Zealand Institute of Economic Research. (2012). Water management in New Zealand. New Zealand: New Zealand Institute of Economic Research.

Samaraweera, G., Li, C., & Qing, P. (2014). Mitigating product harm crises and making markets sustainable: How does national culture matter? Sustainability, 6, 2642-2657.

The State of Queensland. (2013). Dairy effluent management system:Technical note E02. Retrieved from Dairy Programme Limited: https://dairyinfo.biz/wp-content/uploads/2014/11/E02_Dairy_effluent_management_systems.pdf

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