Fonterra, Government Working to Quell New Zealand Milk Scare

January 25, 2013 06:35 AM

Concerns emerge after tests found low levels of the fertilizer aid dicyandiamide, or DCD, in New Zealand dairy products.

Copyright 2013 Bloomberg

Jan. 25 (Bloomberg) -- Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, and New Zealand officials are working to stop a milk contamination scare from hurting the nation’s NZ$14.5 billion ($12.1 billion) dairy export industry.

Fonterra has fielded "a few" enquiries from customers, with no adverse reactions, a spokesman for the Auckland-based company, said today by telephone after tests found low levels of the fertilizer aid dicyandiamide, or DCD, in dairy products. Fonterra isn’t recalling any products, he said.

The discovery, while presenting no food safety risk, may become a trade issue, Fonterra, which accounts for about 40 percent of the global dairy trade, said yesterday. Ravensdown Fertiliser Co-operative Ltd. and Ballance Agri-Nutrients Co- operative have voluntarily suspended DCD sales, while the government has established a working group to assess the future of DCD to ensure it meets trade requirements.

"If this was to actually become an issue for international players, then clearly two-thirds of our exports rely, to some extent, on that sort of reputation and it’s going to raise an eyebrow or two," Doug Steel, a markets economist at Bank of New Zealand, said by phone. "But I don’t think this is that one."

Fonterra Shareholders’ Fund fell 8 New Zealand cents, or 1.1 percent, to NZ$7.23 in Wellington trading at the 5 p.m. close. The shares climbed 1.1 percent yesterday.

DCD aims to improve water quality on farms by reducing nitrate levels, as well as cut greenhouse gas emissions, according to the government. It’s been used on about 500 out of around 12,000 dairy farms, said Federated Farmers.

Global Markets

"There was the possibility that New Zealand milk products could have been excluded from international markets because of this," according to a statement on the Ministry of Primary Industry’s web site. "The action we have taken is to prevent that happening."

Fonterra, which exports to more than 100 countries, is relying on China and emerging markets to drive growth. In 2008, a melamine-milk contamination in China killed at least six infants, causing the collapse of its local partner Sanlu Group.

Fonterra’s precautions reflect the company’s reliance on international markets for growth. The company forecasts the global dairy trade will increase at least 100 billion liters by 2020, led by China and India.

The government is working with Fonterra to decide how DCD can be used to meet trade requirements, according to the ministry. The absence of agreed levels means that any presence could be unacceptable to some markets, according to the statement.

Trade Risk

"These residues have only come to light given the increased sophistication of testing we now possess," William Rolleston, food safety spokesperson for industry body, Federated Farmers said yesterday in a statement. "That said, a detectable level at this time presents a trade risk, no matter how small."

The agricultural supply companies have worked with Fonterra and the government to assess DCD use since December after low levels were found in milk powder, Ravensdown said in a statement on its website.

"Food regulators around the world are reflecting market demands with increasingly rigorous testing and in some countries there is a zero tolerance to detected residues outside agreed standards," said Carol Barnao, MPI Deputy Director General Standards, in the MPI statement.

Fonterra in December raised its forecast payment to farmers, saying it expects higher global dairy prices in the first half of 2013. While milk prices fell toward year-end as new season output from New Zealand and other southern hemisphere producers entered the market, they are 28 percent higher than in mid-July after the worst U.S. drought in 56 years curbed supply.

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