Fonterra Suspends Sri Lanka Operations Amid Tainted Milk Protest

August 23, 2013 05:17 AM

The company closed its office and local plants and asked its 755 local workers to stay at home.

Tracy Withers

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, suspended operations in Sri Lanka after protests outside its local office sparked by allegations some milk powder products were tainted.

The company closed its office and local plants and asked its 755 local workers to stay at home, Auckland-based Fonterra today said in a statement. A court order issued this week prevents it from selling products, advertising or making public statements in Sri Lanka, the company said.

Fonterra, which has provided product safety assurances to the government, sees Sri Lanka as a key growth market for milk products, and in April the company started a plan to help local dairy farmers which featured a visit by All Blacks captain Richie McCaw. About 200 protesters yesterday shouted slogans and displayed banners that read "Ban all tainted milk" outside the Fonterra local office on the outskirts of Colombo, the Associated Press reported. They also brought a coffin with posters of Fonterra brands and laid it before the building.

"Recent events have made it difficult to maintain day-to- day operations and we need to get them resolved," Chief Executive Officer Theo Spierings said in the statement. The plant closures are a "precautionary measure to ensure our people working there are safe," he said.

The company is seeking to restore its reputation since China, its largest milk powder customer, banned some products after the discovery of batches of whey protein with a contamination that could cause botulism. Foreign Affairs Minister Murray McCully visited Beijing earlier this month.

Botulism Scare

Shares in the Fonterra Shareholders’ Fund, which tracks the dividend and earnings of the cooperative, fell 1 cent to NZ$6.90 at 4:40 p.m. in Wellington. The shares have dropped 3.1 percent since the botulism scare was identified on Aug. 3.

Dairy is New Zealand’s largest foreign exchange earner, accounting for 28 percent of overseas sales in an economy where exports make up about a third of output. China, which overtook Australia as the nation’s largest trade partner this year, bought NZ$7.7 billion ($6 billion) of New Zealand’s goods in the year through June, NZ$3 billion of which was dairy. Earlier this month, Sri Lanka’s Health Ministry said tests performed by the government agency Industrial Technology Institute confirmed that two batches of two Fonterra milk products showed traces of the agricultural chemical dicyandiamide, or DCD, and ordered a recall, the AP reported. Fonterra earlier said it had recalled the two batches, it said.

Independent Testing

Independent testing had found no traces of DCD in any Fonterra-branded products in Sri Lanka, the company said in a Aug. 18 statement. Legal action is under way to resolve the court order, Fonterra said today.

Sri Lanka’s latest tests on New Zealand milk powder imports showed they were free of DCD, government officials said yesterday. The New Zealand government had provided an assurance that future deliveries will be DCD-free, Technology Minister Champika Ranawaka said at a news conference.

New Zealand’s troubles began Aug. 3, when Fonterra said a dirty pipe at a processing plant may have tainted whey protein used in dairy formula with bacteria that can cause botulism, a rare illness that may lead to paralysis. China then stopped imports of whey protein and a dairy base powder from Fonterra.

The announcement also prompted companies ranging from infant-formula producers Danone SA and Abbott Laboratories to beverage maker Coca-Cola Co., which used Fonterra’s contaminated ingredients or its production lines, to issue precautionary recalls on the Chinese mainland and in Hong Kong. Gary Romano, managing director of New Zealand Milk Products, also stepped down.

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