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Fonterra Under Fire Over Milk Scare; Product Recalls Continue

Fonterra logo photographed near the Fonterra Te Rapa plant near Hamilton, New Zealand, Aug. 6, 2013.
Fonterra logo photographed near the Fonterra Te Rapa plant near Hamilton, New Zealand, Aug. 6, 2013.
Reuters
Fonterra — the world's largest dairy exporter — came under fire from the New Zealand government, farmers and financial regulators for its handling of a food contamination scare that has triggered product recalls and spooked parents from China to Saudi Arabia.

The government sent officials to Fonterra premises to ensure a clearer message and to regain international confidence after New Zealand's biggest company was criticized for dragging its feet in saying it sold whey protein products that contained a bacteria that could cause botulism — a potentially fatal food poisoning.

“We will be conducting an internal review and this will be subject to external scrutiny as well,” said Gary Romano, Fonterra's managing director of New Zealand Milk Products.

The country's agricultural lobby urged Fonterra to be open with parents of infants about details of the contamination. “There will be a reckoning, but now is not the time; the 'who, what, why, when, where and how' questions come later,” Federated Farmers Dairy Chairman Willy Leferink said in a statement. “Right now, we owe it to our consumers here and abroad to give them facts and not speculation.”

New Zealand's Financial Markets Authority said it was concerned about how long it took Fonterra to disclose the contamination issue. The company said it confirmed on July 31 that this was caused by a dirty pipe at one of its New Zealand plants, before issuing a media statement early on Saturday, three days later, and in an announcement to investors on Monday.

There have been no reports of illness resulting from the affected products, but the scare risks tainting New Zealand's “clean and green” image.

Finance Minister Bill English said the economy was likely to escape any significant damage as a result of the Fonterra scare, but there was some longer-term risk to the country's reputation.

“The economic impact of the amount of product currently under restrictions is sufficiently small [that] it wouldn't have a discernible impact on our GDP,” English said in reply to a question in parliament.

More recalls

On Monday, Fonterra CEO Theo Spierings said the company did not face a ban on its products in China, only restrictions on whey protein concentrate. He said he expected the curbs would be lifted this week as soon as Fonterra provides Chinese regulators with a detailed explanation of what went wrong.

China, Hong Kong, Sri Lanka and other countries, however, have issued fresh instant formula milk product recalls, and the New Zealand government warned that China could extend restrictions on whey protein powder to other dairy products.

“So far, [there has been] very limited action. But this is likely to change, and it would change in the direction of wider, not narrower,” Trade Minister Tim Groser told reporters.

Fonterra is a major supplier of bulk milk powder products used in infant formula in China, but doesn't sell in China under its own brandname after local dairy company Sanlu, in which it held a large stake, was found to have added melamine — often used in plastics — to bulk up formulas in 2008. Six babies died then and thousands were taken ill.

China's consumer quality body said it ordered a recall of two batches of milk formula brands marketed by Abbott Laboratories, a day after some of the U.S. healthcare company's products were recalled in Vietnam. Abbot said the move was a precautionary measure after some of its milk formula brands, which did not contain whey protein concentrate sourced from Fonterra, were packaged in the Fonterra facility.

Cow & Gate recalled 80,000 cans of one type of its stage-three baby formula in Hong Kong and Macau. It said there were no signs of contamination in any of the products sold in the two regions. More infant formula tins were cleared from New Zealand supermarkets after Nutricia, part of French food group Danone that makes the Karicare brand, announced a blanket ban Monday on two of its infant products.

Sri Lanka suspended milk powder imports from New Zealand, while Brunei media cited its government as ordering a recall and the ban on the import, distribution and sale of Fonterra food products. Fonterra has not identified either of those countries as having been affected by the safety issue, though it has said products containing the contaminated whey protein had been sold on to Malaysia, Saudi Arabia and Thailand.

Dairy auction

At its fortnightly Global Dairy Trade auction, the world's biggest wholesale marketplace for milk powders and dairy products — most of which originate in New Zealand — prices fell for the first time in 6 weeks, while volumes jumped. Fonterra's GDT Price Index dropped 2.4 percent, following a 5.3 percent rise at the previous sale.

Ahead of the auction, analysts had said the event could help gage the likely impact of the contamination scare on prices and sentiment toward New Zealand dairy products, which command a premium over rivals. In the event, the drop in prices was less than the five to 10 percent that some analysts had predicted.

Dairy exports earn about a quarter of New Zealand's NZ$46 billion annual export earnings.

Units in Fonterra's Shareholders Fund, which offer outside investors exposure to the cooperative's farmer shareholder dividends, closed up 1.3 percent on Tuesday at NZ$6.95, erasing most of the previous day's losses.

“If Fonterra gets knocked as far as confidence is concerned, then the farmer gets knocked, because at the end of the day Fonterra is the farmer,” said William Stolte, a farmer in Masterton on New Zealand's North Island.

“And the farmer has to accept that... meanwhile, we have to keep milking the cows,” he said.

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