New Zealand’s Fonterra Co-operative Group — for us Sri Lankans, the Anchor company — has gone through a remarkable transformational change in the face of certain issues they faced in some of the markets they operated several years ago. At the heart of this transformation is the Kiwi dairy giant’s unwavering focus to ensure quality and safety of its products and their traceability. Mirror Business met with the key man heading this transformation—Greg McCullough, Fonterra’s Group Director - Food Safety, Quality & Regulatory Affairs, who was recently in Colombo on a brief visit to Fonterra’s local operations under Fonterra Brands Lanka (Pvt) Ltd. Greg comes from a family with strong interests in dairy farming and milk production. He is a Fonterra shareholder and has a wealth of experience in manufacturing across dairy and infant nutrition, including managing plants in China, Indonesia, New Zealand, Thailand and Europe.  He has lived and worked in China, Netherlands, Singapore and the USA.

It’s not always the case where we see key Fonterra officials like you visiting Sri Lanka. May I know the reason for your visit here?

Well, it’s been a five-week working trip for me visiting key locations where we have our operations. I first flew down to Singapore and from there to Amsterdam, were I met some of our European office people. We also met with some big multinationals in the Netherlands to whom we are a major supplier. 

Then we went to Geneva, Switzerland and met a key client there, and from there we went to St. Petersburg, Russia, because Fonterra is active there. Then we came back to Singapore, where we did a full week’s training for the whole of Asia, including our people from Sri Lanka. 

Then from Kuala Lumpur, I came here for three or four days. From here I will fly out to our office in Bangkok and then head home. Yes it’s a long trip. I haven’t been able to see the team in Sri Lanka here before. We have an advanced team and they’ve made some reasonably significant improvements in what we do here in Sri Lanka. So I was here to congratulate for their achievements more than anything else.

From the literature that is available in the public domain, we understand that Fonterra has changed a lot as a company during the last three to four years. This for sure must have been prompted by the issues the co-operative faced several years back.

Yes, after the issues that we had, my role was developed. I joined Fonterra in August, 2014. Prior to that, I was working for Mead Johnson. From there, we set up a whole transformational programme of what we would expect a world leading dairy company to be and we built a programme on how to get there. So five years down the track we are a completely different company from what we were. And on top of that, we changed our whole governance structure. For example my role now is to report functionally to the CEO and I have access to the board of directors. So our escalation process, when we have areas of concern, is right to the very top of the organization. We concentrate a lot on the transparency as well.

What transpired in Sri Lanka in 2013 involving Fonterra—what do you think were the major reasons behind it?

I must say it was quite an unusual situation. The DCD issue happened in south island. All the milk supplied to Sri Lanka comes from the north island.  So you were never supplied with any milk that had DCD. And yet there were a number of reports alleging that it was the case. All the tests we did, the two governments did and independent parties did assured that there was no DCD in milk supplied to Sri Lanka. That was a story that was created here. We never had a DCD issues in the north island. We can only supply science. It’s very hard for science to fight emotions.

But that incident and the precautionary product recall in 2013 on the botulism scare evidently helped Fonterra to transform for the better. Didn’t it?

Yes, since then we have invested a lot in our infrastructure and our people to ensure the safety and the quality of our products. We actually have a quality assurance system that is risk-based. We don’t test for the sake of testing; we test on risk base and determine all the way through the process that the product is made to specifications. All our factories are FS22000 certified—an internationally recognised food safety accreditation—and the company runs thousands and thousands of tests every year from the time the milk hits our tankers to ensure the safety and quality of our products. 

And when it comes to releasing the product, we do a review of everything that we’ve done up to that point before we sign the certificate. Once it’s signed it goes to the government and they do a review and issue the health certificate, so we can ship the product. Also, we have a number of regulatory bodies and every three months they can come and check whether we are doing everything that is supposed to be done.

We know that Fonterra Sri Lanka source some milk locally. Does the same stringent process apply to such as well?

What we try and do is to operate to the same standards in every country we operate around the world. Sometimes it’s challenging. We have actually spent quite a bit of money here. We have supplied some scientists here and we really took the opportunity to look at the microbiology of your milk and to see how we can work with the farmers to improve it. One of the things we found was that the success of having good quality milk is how quickly it is moved to cold storage. So we have invested quite significantly in milk cooling centers that preserve the quality of the milk.

One of the positive things we found was that a number of Sri Lankan farmers are producing milk at the quality of the New Zealand milk or even better. Now we are working how to get that to the other farmers. 

In terms of adulteration and purity of the milk, in New Zealand we are now testing all our milk through the Foss adulteration module—the CombiFoss. We have invested in a similar thing here in Sri Lanka. 

After what happened here in 2013, how do you rate the relationship between the Sri Lankan and New Zealand governments?

I think the New Zealand government’s relationship with the Sri Lankan government as well as other governments is quite strong. New Zealand is one of the major dairy countries in the world and we have quite a different regulatory situation. The New Zealand government actually provides a health certificate, which is a promise from the New Zealand government that guarantees to the Sri Lankan government or to other governments that we are meeting your specifications and requirements. On top of that we have Fonterra Standards and Ministry of Primary Industries’ standards.

Let’s talk about Fonterra’s world-class traceability system that we have been hearing a lot about.

Yes. When we had the precautionary recall some five years ago, it took us around three weeks to determine where the product was, and we recognized that we really needed to improve on that. In last three years, we invested about US $ 60 million across the globe to really have the world leading traceability system. We have shared what we have done with some of our huge multinational clients and we would say we would be world leading. 

What we are doing is, we are employing three ERP systems, and with those SAP applications we have built a bridge into the company-wide traceability system. So every time a product comes through the process, we can pick it up to the farm. If you think of a block chain and block chain is a handshake—every time we touch a product through SAP there is a handshake through to the trace. We can determine everything that has come into making the product, where it is processed and where it is sold. We can determine that about in three minutes. 

It’s absolutely impressive what we can do with that. Our traceability programme based on GS1 traceability standards, is one of the best in the world. On top of that we’ve developed QR codes. We have unveiled a QR code on Anmum range in certain markets, which enables consumers to trace the product’s origins. We are well on track to have a fully electronic traceability solution by 2020. 

Despite such stringent quality and safety controls and high-tech traceability solutions, how challenging it is to maintain and improve food safety and quality in the current context, where contamination is becoming an increasingly common phenomenon due to high usage of chemicals in agriculture and related industries? 

It requires focus and constant work. In our case, the quality and safety of the product is mainly ensured at three levels—the government’s programme, Fonterra programme and tests run by multinationals we supply our products to. The New Zealand government runs national contaminants programme and so they are taking milk from every one of us who produce milk in New Zealand for tests every month. At Fonterra we test our products for all sorts of contaminants and other issues to Global Proficiency limits. At the same time, big multinational run their own programmes on quality and safety and part of the deal we have with them is to provide us with their test results. That is how we ensure that our product is at world leading standards. 

On top of that we have EFSA (European Food Safety Authority), which is probably the world’s leading in contaminants. They are putting out guidelines or areas of possible concerns for the future—meaning that the companies should start watching certain parameters and certain contaminants because having a level of concern, they may regulate those in the future. The US FDA (Food and Drug Administration) is the same. We have a very close access to them and we monitor our products for early learning and warnings that come out.

Also, there is this organization called GFSI (Global Food Safety Initiative), which is a combination of global food safety people. All our competitions are in there. Fonterra chairs a sub group of GFSI looking at contaminants of low toxicological concern. If you look at advanced science, we are as a food company, that is a quite an accolade for us.

Further, we have New Zealand Food Safety Science and Research Centre consisting of the government, university academics and the industries—the milk industry, the meat industry, the kiwi food industry and so on. That is a very unusual scientific group. There we really promote leading edge science. One of the key areas we are concentrating is whole genome sequencing, which means we do the DNA of the microbiome. 

This is really advanced science. This tells us what type of bacteria we are dealing with; is it a health organism living in your factory environment or is it a new visitor to your factory and it also teaches us how we can best eliminate that organism. Through this work we have been able to learn a lot. Not only that. When a customer around the world says ‘oh we found this in your product’, through genome sequencing we can tell if it has really come from us or whether it has come from the local environment. In terms of science this is amazingly forward in microbiology. We are, if you like, looking just under the blanket, because we are just starting to discover the advanced science and what it means to the industry. The ability to control the microbiology of our products is going to be huge.

Since what happened in Sri Lanka and elsewhere several years ago, what else has changed apart from Fonterra significantly improving its quality control procedures and traceability system?

Well, we banned the use of DCD and the New Zealand government banned it as well. Now it is highly regulated what you can and cannot put on to your land. On top of that we have the adulteration module, so we are screening everything that is coming. Not only that, we also have all animal remedies regulated. It is quite a significant improvement from where we were. 

We are actually selling a lot of milk on our New Zealandness because no other country in the world farm their animals like what we do. Predominantly pasture-fed, the cows are free to roam and that is creating a premium for New Zealand milk. We now sometimes get small complaints about the colour of the milk. That is because of the seasons. It is just a natural product. 

So, since this transformation at Fonterra, has there been any major incident with regard to the quality or the safety of the products?

Since my position was created and since we put in the new structure, we employed some really high quality professionals and invested in capability and capacity of our people. I have to say during my watch everything has gone well. In fact, what we see now is fewer complaints and the ones we are getting are not of significant nature. One of our biggest customers, who we supply to, we did a whole year without any complaints. 

After the issues we faced about five year ago, we had a reset during the first year; and then we built the systems for a couple of years and now we are in a maintenance and sustainability mood. We have built a world-class dairy company and we have to maintain that. 

What has been the investment Fonterra made for this transformational change?

I would say huge. Even though we had a downturn in the milk price and we had capex restrictions, to deliver what I wanted in terms of food safety and quality not only in New Zealand but also here in Sri Lanka and other markets we operate, the funds allocated for that were ring-fenced and were always provided. That is the mind shift we have made in Fonterra. We are investing around US $ 150 million a year just on quality related investments and I’m really proud of that.  That money is ring-fenced and given to me as the quality manger and then I priorities myself where I want to spend it on a global level. That has a significant difference in the company.

Coming back to Sri Lanka, during the DCD scare, many recommended the consumption of fresh milk instead of powdered milk.  Is there any difference in nutritional value between the two?

More than 95 percent of what we produce at Fonterra is powder. When you think of critical nutrition for human development, milk powder is absolutely perfect. In some places it is very difficult to move milk with water in it. I would say nutritional value coming from the milk powder is easily equivalent to liquid milk. 

Despite your limited exposure to the Sri Lankan market, how realistic do you think it is for Sri Lanka to aim for self sufficiency in milk?

I think today if we took all the milk from whole of Sri Lanka, probably our factory could run for 20 percent of the time. In terms of the nutrition and health of the Sri Lankans you need to import milk. What we are able to do through the efforts we are making here is to improve the quality of the milk and also the volume. Whether you will ever become self sufficient in milk is a question well into the future. Even the UK for example is only 58 percent self sufficient in milk. UK is a country with a big farming history. We have a demonstration farm here in Sri Lanka and we have in excess of 5, 000 people going through it a year. Among them are farmers, veterinarians, university students and even school children. We use our expertise we developed in New Zealand to educate the Sri Lankans.

Pix by Kithsiri De Mel