Fonterra still keen on China

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Fonterra has reiterated its commitment to China as the execution of two men involved in the melamine baby milk poisoning turns the spotlight back on its disastrous investment there.

China this week executed two Chinese sentenced in January for their part in the deliberate melamine lacing of milk supplies to more than 20 Chinese dairy companies, including SanLu, in which Fonterra held a 43 per cent stake.

At least four babies died and nearly 300,000 children became ill with kidney problems through drinking milk adulterated with the chemical. Melamine artificially boosts milk protein readings and therefore payment for milk.

The executed men were milk or powder suppliers. They did not work for SanLu, which went broke in the scandal, losing New Zealand farmers their $200 million investment. SanLu's then general manager Tian Wenhua was sentenced to life imprisonment.

Fonterra, New Zealand's biggest company and the world's biggest dairy exporter, faced a fresh round of questions about SanLu's involvement yesterday after news of the executions. A spokesman said Fonterra had made no further donations to China since giving $8.4 million to a charity project, the Fonterra Rural Maternity and Infant Healthcare Community Programme, which it established with a Chinese foundation a year ago, after the New Zealand government of the time revealed the contamination.

All compensation to Chinese parents had been handled by China's government, the spokesman said. Fonterra's milk powder sales to China surged after the scandal as China sought a safe supply of milk.

Fonterra was "still committed to China", the spokesman said.

That commitment was in the form of continuing its dairy farm venture in China, farm services and the recently introduced Anlene and Anmum milk powders into the market, he said. New Zealand sales of milk powder to China have leapt 180 per cent in the year to September compared to sales in the comparable previous year. The melamine poisoning was partly responsible for the rise, but prices were the main reason, the spokesman said. The China import market is price driven and world commodity prices had plunged during the year, which caused a surge in demand. Sales to China had fallen in the last quarter as world prices recovered, he said.

Fonterra had not ruled out another investment in a Chinese dairy company but would ensure it had control of the supply chain and manufacturing this time.

Fonterra's handling of the poisoning was widely criticised at home and questions remain about why it did not immediately demand a public recall of SanLu products after it learned of contamination complaints to the company. Instead, while product continued to be sold into households, Fonterra took Chinese provincial government advice that a trade recall was more desirable.

Six weeks passed between SanLu products being implicated in kidney ailments among babies and when Fonterra notified the New Zealand government. Then prime minister Helen Clark notified Beijing officials. One week later SanLu halted production of milk powder.