Fonterra not alone

September 17, 2008

Fonterra is not the only company whose milk powder has been contaminated by melamine in China.

Twenty percent of Chinese dairy firms investigated in the wake of the health scare have been found to have produced melamine-tainted formula, state media reported on Tuesday.

. . . Out of 109 dairy producers checked, 22 had been found to have produced batches of milk contaminated with melamine, including Beijing Olympic Games sponsor Yili and other major brands, state television said, citing China’s quality watchdog.

A Southland Times report of the concerns of a Chinese businessman who wanted to buy infant milk powder earlier this year. This suggests sabotage is not unexpected:

A Chinese businessman trying to buy 1500 tonnes of baby formula in Southland this year was so concerned the formula would be tampered with once it arrived in China that he insisted it be supplied in sealed 1kg containers.

The unusual export request was revealed yesterday by Venture Southland enterprise and strategic projects group manager Steve Canny, who said fears the formula could be diluted with other materials like talcum powder or chalk once it arrived in China was the biggest issue for the investor.

The first priority is the safety of the product but this scandal also threatens Fonterra’s hopes  to take advantage of the growing market for milk in China.

Fonterra’s joint venture is a subsidiary of government-controlled Shijiazhuang Sanlu Group, which announced last October that China’s biggest milkpowder marketer would be floated in the second half of 2008.

Chinese yuan-denominated A shares were to be offered in the joint venture founded by Sanlu Group and Fonterra.

The listing was the long-term plan for the venture in the north Chinese province of Hebei, from its foundation — when Fonterra paid 864 million yuan ($NZ150 million) — and its projected revenue for 2008 was 8.6 billion yuan, with a target of 30 billion yuan in 2010.

Headquartered in Shijiazhuang, the capital of Hebei province, Sanlu is China’s third biggest dairy company, behind the Yili and Mengniu companies based in Inner Mongolia. The company chair who signed the deal with Fonterra, Tian Wenhua, said the joint venture was designed from the start to be floated on the Chinese sharemarket.

Now those plans have been thrown into disarray: Chinese authorities have ordered the Shijiazhuang Sanlu Group Co Ltd to halt production and its Ministry of Health has ordered all milkpowder produced by Sanlu withdrawn from sale.

And authorities and consumers in China are calling for dairy industry executives involved in the scandal to be held accountable.

Sanlu executives are being targeted after Health Ministry party secretary Gao Qiang told the South China Morning Post the government became aware only a week ago that drinking the milk could cause kidney stones.

Mr Gao denied the government had covered up the problem to avoid detracting from the Beijing Olympics and said it was a “severe food safety accident”.

“Sanlu Group should take a large part of the responsibility,” he said.

That there are so many other companies which used contaminated milk may be a mitigating factor for Fonterra but that will be cold comfort for the families whose babies have died or become ill becaucse of it.

When it comes to a choice between business expansion and baby’s lives, there is only one ethical option. Whoever is responsible for what happened, Fonterra must ensure any company with which it is involved has safeguards which ensure it can’t happen again.

[For more on this issue see Rural Network where Philippa Stephenson writes on reports on bribes and cover ups and that there had been no inspections of the Sanlu factory for three years.]


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