Fonterra learning the hard way

Fonterra has learned a very expensive lesson in China, one of which is about trust in a culture where corruption is rife and saving face comes before safety.

As chief executive Andrew Ferrier said, the company will never know  if it was mis-led by officials over the poisoned milk scandal.

Defending Fonterra against claims that it should have gone public earlier, Mr Ferrier said the company thought government officials at all levels were aware of the problem in August. “When our people in China met with the New Zealand embassy we thought the Chinese central government was aware.

“It could have been that people were fooling us at the local government level. We’ll never know.”

A senior Chinese government official is now saying that the problem is under control. But can we believe that?

This will not be the end of Fonterra’s investment in China but as company chair Henry van der Hayden says:

“The lesson for us here is about having absolute control over our supply chain,” Mr van der Heyden said. “We have to make certain that we learn from this.”

That is what they do in New Zealand and our reputation for safe milk on which consumers rely is built on that. That is what must happen in other countries and with other ocmpanies. PGG Wrightson which has dairy investments in Uruguay and Silver Fern Farms and Alliance Group which are talking about sourcing lambs from South America, must be equally rigorous.

 Macdoctor  says:

Future investors must learn Fonterra’s lesson well. When you are dealing with an authoritarian society where face-saving is the norm, you must expect that mistakes and bad news will always be covered up. This is not to say that the Chinese are dishonest, far from it, they just have away of handling failure that confuses us. The type of transparency that you see in New Zealand, where even the Leader of the Opposition fronts up and apologises, is one that is unique to the West. Trade with China is certainly possible. Participation in joint ventures will require some work on both of our parts.

When Ferrier was interviewd on Wednesday he said that he didn’t think it would be possible for the San Lu brand to recover. Inquiring Mind reports here  and here that San Lu is close to bankruptcy and that Sanyuan Foods which wasn’t hit by the poisoned milk is likely to acquire it.

In a related story experts are struggling to work out safe levels of melamine in food in New Zealand.

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