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Milking fortune

ITALY'S latest Parmalat scandal is being compared to US energy trader Enron and telecommunications company WorldCom, which were also embroiled in massive fraud scandals.

Parmalat, Italy's eighth-largest company and the number three maker of cookies in the United States, has acknowledged a multibillion-dollar hole in its balance sheet and filed for protection from its creditors. As the scandal showed signs of becoming the biggest of its type in Europe, Parmalat itself turned on Calisto Tanzi, the founder, who is accused of spiriting away 800 million euros. Tanzi has admitted that $10 billion is missing from Parmalat's balance sheet, including hundreds of millions of dollars diverted to other family businesses. Though the Italian government has proposed strengthening its ineffectual securities watchdog to better police the behaviour of public companies, the Parmalat scandal is a sign that Italy's capitalism needs even tougher controls. In Italy tens of thousands of small investors and thousands of milk producers have been hit by the scandal. The price of shares in Parmalat fell from three euros in July to 11 cents at the end of December. The Italian milk producers have not been paid for four months. The scandal is having global repercussions. According to an Australian newspaper, Parmalat Australia's accounts indicate huge loans exist between the Australian operation and the Italian parent company. Last year Parmalat Australia owed Parmalat in Italy more than $217 million, up from $189 million the year before. In the US, securities regulators are suing Parmalat for "grossly overstating its assets" to US investors, who hold some $1.5 billion in bonds and notes. The collapse of Parmalat has scandalised the Italian business world, causing payment problems for some milk producers in Italy and France, sparking repercussions as far away as Nicaragua where the group is the biggest milk producer, and undermining the finances of the Parma football club. In 2002 Parmalat, which makes dairy products, biscuits and fruit juices, had sales of 57.5 billion euros. It employs more than 36,000 people in 30 countries. Four thousand of its staff is in Italy and it achieves more than 70 per cent of its sales in Europe, North and Central America. The bankruptcy of Parmalat has raised genuine questions about corporate regulation in Italy where even businesses have become family affairs dominated by insiders. Italy remains a rather poorly regulated economy. There is a lot of uncertainty, a lot of questions to be asked.