San Lu scandal cost Fonterra $139m


The poisoned milk which contaminated infant formula produced by San Lu, in which Fonterra has a 43% stake is one of the reasons this season’s milk payout is lower than expected.

The $139 million loss is only money and to give the company some credit it made this clear when making the announcement today.

Fonterra chairman Henry van der Heyden said: “We are certainly not putting the financial consequences ahead of our primary priority of consumer safety. We are focusing all our efforts on what Fonterra can best do to work with the Chinese authorities and help get safe dairy products to Chinese consumers.”

The $139 million estimate is made up of the cost of recalling products plus Fonterra’s “anticipated loss of San Lu brand value”.

Mr Van der Heyden said: “At yesterday’s board meeting, the directors discussed the San Lu tragedy in depth and were fully supportive of the approach taken to date by Fonterra management and staff.

“Throughout this crisis, Fonterra’s paramount concern has been for the health and safety of Chinese consumers and recalling contaminated product as quickly and effectively as possible in the Chinese environment. The scale of this tragedy has been truly shocking and our heartfelt sympathies go out to all the affected children and their families.”

He described the latest revelations that San Lu management were investigating complaints of sick infants as early as eight months before the San Lu Board and Fonterra were first informed on August 2 as “deeply concerning”.

“That Fonterra was not informed earlier is frankly appalling,” he said.

It is, but Fonterra must also question its own actions and strategy in China.

The poisoned milk as an act of sabotage. But that should not have been unexpected and the company should have taken extra measures to safegaurd the production chain in light of recent quality problems with Chinese products.

 Inquiring Mind has a list from the Financial Times of product recalls in China in the past two years which includes dumplings containing pesticide, toothpaste containing diethylene glycol,  and pet food which poisoned animals.

Fonterra’s first priority now is to do what it can to help the victims of this tragedy.

It then owes it to its customers, its shareholders, its own and New Zealand’s reputation to ensure the very high standards it requires in the production and manufacture of its produce here are maintained in any ventures it undertakes elsewhere.

Other views on this issue: Inquiring Mind  comments on a Wall Street Journal story; Poneke looks at international coverage; Macdoctor says it’s likely further deaths will be supressed; No Minister  sees a political angle and Kiwi Polemicist gives some background information.

Food crisis might bring free trade


The growing world shortage of food might achieve what years of diplomacy and lobbying haven’t: a reduction in, perhaps even the elimination of, tariffs on food.


UN Secretary General Ban Ki-moon has called for an immediate suspension or elimination of price controls and other trade restrictions in an effort to bring down soaring world food prices.


Adam Smith  links to a Financial Times article by World Bank head Robert Zoellick who makes a similar call. His 10 point plan includes a need to boost agricultural supply and research spending; increase investment in agribusiness; and remove subsidies and tariffs on food and bio fuels.


New Zealand farmers were dragged into the real world when Roger Douglas removed subsidies on farm produce in 1984. We didn’t like it at the time but that was partly because tariffs remained on imports and the labour market was highly regulated so costs stayed up while prices dropped; and we were also battling high interest rates, high inflation, a high dollar and drought.


However, while a few farmers were forced to sell most hung in and eventually adapted to the new order and are more secure because of it. Those downstream weren’t so fortunate. Thousands of jobs were lost on farms, in stock firms, shearing gangs, freezing works, and other businesses which serviced or supplied us or processed what we grew. The lesson from this was clear: the subsidies hadn’t helped producers or consumers, it had just feather-bedded those who take their cut between the farm gate and the kitchen table.


A good season for cropping and dairy farmers makes it easy for them to spurn calls for a return to subsidies but even though they’ve had a horror season I’ve yet to hear a single sheep or beef farmer wanting to go back to the bad old days of when politicians controlled our income. 

Many of our trading partners have yet to understand the harm that subsidies do and New Zealand farmers, processors and the wider economy pay the price for that. This lesson is lost on some in New Zealand including the Greens and NZ First; and as David Farrar  points out it is ironic that free trade advocates are with the UN and Oxfam on this issues while the Greens are siding with the US in supporting tariffs and biofuels.

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