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Fonterra Scare Affected All New Zealand’s Exports, Prime Minister Says

August 12, 2013
Fonterra export ship
  

Fonterra CEO says milk powder contamination scare put the cost at "tens of millions" of New Zealand dollars.

David Fickling

New Zealand’s entire export industry has suffered from the contamination scare that prompted China to halt imports of milk powder made by Fonterra Cooperative Group Ltd., Prime Minister John Key said.

Damage from the incident would be hard to quantify as it affected all of New Zealand’s exports around the world, rather than just dairy sales to China, Key said in an interview with Television New Zealand yesterday. In a separate interview, Fonterra Chief Executive Officer Theo Spierings put the cost at "tens of millions" of New Zealand dollars.

"Fonterra is the poster child for New Zealand’s exporting, whether we like that or not," Key said, according to a transcript of the interview. "It’s really about what is the damage to New Zealand’s reputation, both for Fonterra and for dairy products, but also for the wider products we sell into the Chinese market and other markets overseas."

New Zealand’s currency fell to a one-month low after Fonterra, the world’s largest dairy exporter and the country’s biggest company, said Aug. 3 that a dirty pipe at a processing plant may have tainted whey protein used in milk powder with botulism-causing bacteria. China halted imports of some Fonterra products and the official news agency Xinhua said buyers were losing faith in New Zealand’s clean image.

Inquiry Committee

The company today named a seven-person committee to oversee an independent review of circumstances that led to the contamination and subsequent events, it said in an e-mailed statement. Five of the committee, including the chairman Ralph Norris, are independent or farmer-elected Fonterra directors and there will be two external members, including a yet-to-be named scientist.

The committee has appointed solicitor Jack Hodder as lead investigator and will seek another expert in manufacturing and food safety to work alongside him, Fonterra said. The board wants the inquiry completed within six weeks, it said.

Foreign Minister Murray McCully will visit China in about a week and trade minister Tim Groser will follow him in a "few weeks or months," Kelly Boxall, Key’s spokeswoman, said by phone yesterday. Key will wait to visit Beijing until an inquiry into the incident is completed because "he wants to be able to look them in the eye and give them answers," she said.

‘Connecting Dots’

Fonterra also recalled about 40 metric tonnes of milk powder delivered to Sri Lanka, Spierings said in the interview on Television New Zealand. The company was disputing the recall, a separate advertising ban and the Sri Lankan government’s claim that the powder contained dicyandiamide, or DCD, an agricultural chemical, he said.

"With all the noise of this last week, people are connecting the dots, and that’s why this is happening," Spierings said, according to an interview transcript.

A report by Sri Lanka’s Industrial Technology Institute said two batches of milk powder contained DCD, and the country’s ministry of health had told Fonterra’s Sri Lanka division in a letter of its ban on local adverts, Sanath Mahawithanage, associate director of regulatory affairs at the company’s unit, said by phone yesterday.

Dairy products are New Zealand’s biggest foreign-exchange earner, accounting for 28 percent of overseas sales in an economy where exports make up about a third of output. Fonterra accounts for about a third of the world’s trade in dairy products and posted revenue of NZ$19.8 billion ($15.9 billion) in the year through July 2012.

Currency, Stock

The country’s dollar dipped to 76.93 U.S. cents Aug. 5, its lowest level since July 8, after Fonterra announced the Chinese import ban. Fonterra Shareholders Fund, the listed entity affiliated with the farmer-owned cooperative, fell the most on record to NZ$6.86 the same day.

The shares have since recovered 4.4 percent to NZ$7.19 as at 10:45 a.m. in Wellington, while the currency rose 2.7 percent to 80.32 U.S. cents.

In 2008, Fonterra’s Chinese partner Sanlu Group collapsed after locally made melamine-contaminated milk powder killed and hospitalized babies, causing an industrywide scandal. In January this year, Fonterra had to assure China that traces of DCD found in some milk posed no health risks.

Fonterra has "got a lot of soul-searching to get through" after the incident, Key said, adding that "for the most part they’re a great company."

Criticism of the country’s "100% Pure New Zealand" image in the wake of the incident was being driven by "opponents" who "want to create mischief," he said, singling out the Daily Mail, a British newspaper, which criticized the country’s environmental record in an report last week.

"We shouldn’t be so precious about it that we get so worried because the Daily Mail writes something," Key said. "The British tabloids hate the All Blacks doing the haka," he said, referring to a Maori dance performed by the country’s national rugby union team.

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