Melamine scandal gets murkier for Fonterra

January 28, 2009

Tian Wenhua the former chairwoman of Sanlu who was convicted for her part in the melamine milk poisoning scandal said she acted on advice given by a Fonterra board member.

But Fonterra’s chief executive Andrew Ferrier says the company was always clear there was no safe level of melamine in milk.

China’s state news agency, Xinhua,  . . .  said rather than stopping production of tainted products after the contamination was confirmed on August 1 last year, Sanlu decided to limit melamine levels to within 10mg for every kilogram of milk.

“Tian said during her trial that she made the decision not to halt production of the tainted products because a board member, designated by New Zealand dairy product giant Fonterra that partly owned Sanlu Group, presented her a document saying a maximum of 20mg of melamine was allowed in every kg of milk in the European Union,” Xinhua said. “She said she had trusted the document at that time.”

Mr Ferrier told the Herald a Fonterra representative had given Tian the document soon after the board was advised of the contamination on August 2.

“The context was when this whole thing broke there was an enormous amount of work going on to find out what melamine was and there was research all over the world about its contaminants, its danger,” Mr Ferrier said. “There was information pulled up from Europe, from the US, everywhere.”

. . . Mr Ferrier said: “I do want to be crystal, crystal clear – although there was lots of information that was pulled up we were vividly clear to Sanlu that the only acceptable level [of melamine] was zero.”

At no point did Fonterra tell Sanlu it was acceptable to keep producing to the melamine level in the report, he said. “Absolutely not, absolutely not.”

I believe Ferrier but it’s not me he needs to convince, it’s consumers who rely on the company’s commitment to the highest possible safety standards for its products.

Just a few months ago Fonterra was being held up as the model to which other processors of primary products should aspire. The fall in world commodity prices is  a large part of the reason this has changed and the company can’t be held responsible for that. But another reason is that it has not handled the melamine scandal well.

As Keeping Stock says:

. . . Fonterra still has a lot of questions to answer, and there’s no escaping the perception, whether merited or not, that Fonerra has been less than transparent throughout.

Fonterra has appeared to be on the backfoot throughout  the whole sorry saga and Roarprawn  is right when she says the company needs a rocket.

Paul Henry discussed the issue with Fran O’Sullivan on Breakfast yesterday and she said that the company made a fundamental mistake at the start by thinking the scandal could be isolated as a Chinese problem. She also said that journalists have been unimpressed by the slow response from the company.

A large company ought to understand the importance of not just being on top of such a potentially damaging issue but showing the world it is on top of it. Regardless of how well the Fonterra may be handling things behind the scenes its poor public relations are giving the impression it’s not handling things well at all and allowing questions over its involvement in the melamine scandal to fester.


What has Fonterra learned?

January 23, 2009

What would Fonterra have done differently before investing in China if the company could have foreseen the melamine poisoning which killed at least six babies, poisoned tens of thousands of others and has led to the chair of Sanlu, Tian Wenhua,  being sentenced to life imprisonment  and two men who supplied melamine being sentenced to death?

The answer to that hypothetical question probably doesn’t matter.

But what Fonterra has learned from the experience does matter  if the company has any thoughts of investing in China in the future.

It’s a vast country with a very large population which means there are big opportunities for investment, but the Sanlu experience shows there are also huge risks.


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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