Fonterra, govt accused of DCD cover-up

Players in New Zealand's $14 billion dairy industry are accusing Fonterra, government officials and their own industry body of "a cover-up" over the DCD issue, as spooked overseas customers refuse to accept millions of dollars worth of exports.

Industry sources say while dairy giant Fonterra is bearing the brunt of the trade reputation risk and the blame for not immediately disclosing its September discovery of DCD residues in some milk products, the Ministry of Primary Industries (MPI) is also complicit in keeping the discovery quiet until last week.

The role of the industry body, the Dairy Companies Association of New Zealand (DCANZ) is also coming under fire from its members.

DCANZ, chaired by Fonterra director Malcolm Bailey, was part of a DCD "working party" formed by the ministry in December, but did not inform its members of the issue until this month.

Some members have told Fairfax they were not told until the same time as the public - on Thursday last week.

An industry player said members could "no longer trust our own industry group".

MPI had a responsibility to the economic mainstay dairy industry to inform it of any potential issues, he said.

There was absolutely no food safety risk from DCD - dicyandiamide, a chemical applied to some pasture to minimise nitrate leaching - but he said "perception is everything with food".

"New Zealand is already a bit tainted by the melamine thing (in China in 2008). It (the DCD residue discovery) was nothing, but because of the delay in disclosing it, it's become something. Just a sniff of a cover-up or cute (behaviour) and you're gone," the industry player said.

"If we had been told in September we could have isolated it (our own products) and dealt with it. It could have been diffused quickly. Now they've forced everyone into damage control."

One source said milk processors who bought milk from Fonterra as well as from their own farmers, could lose tens of millions of dollars because overseas customers were not accepting shipments until the product was certified safe.

But there was no way now that orders already on the water or at overseas wharves could be tested and certified, he said.

MPI has yet to answer Fairfax questions around why it did not inform the dairy industry last year.

Westland Milk Products yesterday announced it had found DCD traces in its own testing. The West Coast South Island company had begun testing milk samples after last week's announcement by Fonterra of DCD trace discovery four months ago.

Fonterra, New Zealand's biggest company and the world's largest dairy exporter, controls nearly 90 per cent of the country's milk supply.

It held a 43 per cent stake in Chinese dairy company SanLu which involved in the melamine baby formula poisoning scandal which swept China in 2008. Fonterra lost its $200 million investment when SanLu subsequently went bankrupt. Melamine was found to have been widely added to Chinese raw milk supplied to Chinese dairy companies by milk sellers in a bid to artificially raise protein levels for higher returns.

At least six babies died and thousands suffered serious kidney damage.

While it is now accepted that the Chinese government at the time covered up the melamine scandal until the Beijing Olympics were over, Fonterra was also criticised for not blowing the whistle on SanLu immediately.

DCD has been used by farmers in New Zealand for seven years to reduce nitrate leaching and greenhouse gases. Fertiliser companies Ballance and Ravensdown on Thursday last week announced they were suspending sales of the product.

Only about 500 farmers are thought to have used DCD.