Fonterra's sales in China 'exceed expectations'

HAMISH RUTHERFORD IN BEIJING
Last updated 06:53 18/03/2014

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Fonterra is shrugging off the impact of last year's botulism scare in China, saying that after a brief lull, sales there continue to exceed expectations.

The company also appeared to brush off claims about the impact the scare has had on other, smaller dairy exporters, saying the Chinese Government's push for consolidation was already underway before it took place.

Speaking at Fonterra's offices in China's capital overnight (NZ time), chairman John Wilson said there was "some flatness" in sales in the weeks around the food safety scare, but strong growth quickly resumed.

"What we're seeing across all of what we do here in China is that we continue to exceed our sales targets," he said.

Last August the Ministry for Primary Industries (MPI) announced tests had shown a bacteria that could cause botulism, a severe form of food poisoning, had been detected in a concentrated whey product produced at a Fonterra plant in Waikato.

That prompted a worldwide recall, particularly of infant formula, which was complicated by the fact that Fonterra could not immediately locate all of the product, which had been produced more than a year earlier, and a number of countries blocked New Zealand dairy products.

Subsequent testing showed the scare was a false alarm and a different, harmless, bacteria was involved.

Wilson said that its ingredients business, its new long life milk products, and initial sales of its own infant formula, along with products for the elderly were all "exceeding expectations".

The farmer-owned co-operative, New Zealand's largest company, has more than $4 billion in annual sales into China, a market that is growing rapidly.

Some smaller dairy companies have complained that even though they were not directly linked to the scare, it affected them more as they did not have the resources or connections that Fonterra had to resolve blocks or reassure consumers.

Wilson said Fonterra took its leadership role in the market "sincerely", but that the market was already changing before last year's product recall.

"The Chinese Government and the Chinese regulators are very certain that they want to see consolidation and they want to make sure that they can have real confidence for their consumers," Wilson said.

Fonterra, which took products from inside the farm gate right into the market was "ideally placed in this marketplace" but other companies might not be as well placed.

"It's a market that's changing really rapidly and it's up to all exporters into this market to respond accordingly," he said.

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On Tuesday Prime Minister John Key will arrive in China, a trip which centres on his commitment made during the botulism scare to come to China to deliver an update on New Zealand's food-safety standards.

It comes just days after MPI revealed it had laid charges against Fonterra under the Animal Products Act related to the contamination issue.

Wilson said the charges were consistent with problems exposed by Fonterra's own internal reviews. He was not embarrassed that the prime minister was making a trip related to an issue caused by Fonterra, nor was the Government fixing the company's problems.

"I don't see it as getting Fonterra out of a hole," he said.

"What I do see it as is respecting the fact that yes, there was an unfortunate incident last year."

Such visits were good for business in China, Wilson said, saying that connections with the Government were of great assistance in allowing the company to grow.

He declined to comment directly on the links between Justice Minister Judith Collins and Oravida, a company on which her husband is a director, but said it was highly important for companies to show connections with the Government.

"The visibility of leadership in this market is important," he said.

- Stuff

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