PM questions Fonterra's delay

Last updated 14:01 05/08/2013
Reuters

New Zealand dairy company Fonterra announced bacteria that could cause botulism found in some of its products. Julie Noce reports.

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The Ministry for Primary Industries (MPI) doesn't know which potentially contaminated dairy products are, or have been, on sale here.

The admission came today after MPI received new information from Fonterra which could change the scope of which Nutricia baby-care products may be affected by contaminated Fonterra whey ingredients.

MPI acting director-general Scott Gallacher also admitted that its advice on which Nutricia products parents should avoid contradicted that of the company.

At a media briefing, MPI said two types of infant formula - Karicare Infant Formula Stage 1 for babies from birth and Karicare Stage 2 Follow-on Formula for children from six months old - should be avoided.

Nutricia, a brand owned by food giant Danone, has previously said only certain batches should be avoided.

Gallacher admitted parents would find the advice contradictory.

"The Ministry for Primary Industries has not been able to fully trace and track through Nutricia's supply chain which specific batches of its products may contain the contaminated whey protein and which do not."

MPI said it could not establish whether the product batches under doubt had been sold already. It was possibly either Fonterra or Nutricia would give it information which would satisfy it "but in the meantime caution is necessary".

Nutricia held its own press briefing but refused to say whether it will take legal action against Fonterra.

"Our prime focus is to give mums everywhere the reassurance they deserve," managing director Australia and New Zealand Corine Tap said.

"We are working closely with Fonterra to ensure we have all the latest information on the contamination issue."

Sixty thousand cans of product in the New Zealand market are subject to the recall.

While the health scare is likely to do significant damage to the Karicare brand and sales beyond the actual value of the affected product, Tap would not put a dollar figure on it.

Fonterra said on Saturday that a raw ingredient - a concentrated whey product - in some baby formula could contain a bacteria linked to botulism.

The contamination had been traced to a pipe and three batches of whey, which were turned into 900 tonnes of varied food products sold by eight companies in seven countries.

MPI said it had sent officials to Fonterra's factory in Hautapu to physically check that the line which is believed to have caused the contamination was no longer in use.

"What we're seeing is a rapidly evolving state of information," Gallacher said, when asked if MPI believed what Fonterra was telling it.

MPI was questioning why information from Fonterra was still evolving, Gallacher said.

He stressed there was no sign of new contaminated product being discovered.

He admitted questions over Fonterra's account of how the event had unfolded, and how quickly it was brought into the loop, had not been fully answered.

"Ever since we were notified on Friday afternoon we have had a number of conversations with Fonterra and there are a number of questions we have over the timeliness and the timetable leading up to our notification on Friday afternoon," he said.

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"Clearly they are important questions, and we're working to get the right answers to that, but at the moment we are fully focused on making sure we deal with the here and now."

Meanwhile, Gallacher was "absolutely" satisfied with the way MPI had communicated the issue.

On Sunday MPI issued a notice on a second Karicare formula on its website, but this was not directly passed on to media, meaning it was hours before the warning was reported.

MPI would not comment on the impact the episode was having on New Zealand's reputation.

There had been no reports of infants of babies becoming sick because of product as a result of the contamination.

Parents are being asked to call Healthline on 0800 611 116 if they have any health concerns. For more information about the product they can call the Ministry for Primary Industries' consumer helpline on 0800 693 721.

MARKET FALLOUT

Fallout from the Fonterra dairy product contamination scare has hit the markets with the New Zealand dollar falling and NZX-listed Fonterra units tumbling.

The dollar fell one cent against the greenback to US77.13c as markets lost trust in "brand New Zealand'' and reacted to the potential breach of trust by the New Zealand dairy industry.

Fonterra's unit price dropped 8.7 per cent to $6.50 in early NZX trading following the uncertainty caused by the ban placed on all dairy exports to China.

Fonterra chief executive Theo Spierings has flown to China in an attempt to conduct damage control over the situation, which has also prompted other international bans.

Russia has put a block on all New Zealand dairy product imports, despite not being one of the countries which imported the potentially contaminated product.

Australia's dairy sector also appears to have been dragged into the issue, with China now blocking all milk powder products from both sides of the Tasman. Coca Cola in China has also recalled a milk drink product.

Economists said it was too early to tell what the economic effects would be but that a speedy resolution to the safety scare was vital to avoid a big hit.

The extent of any damage will begin to be measured on Wednesday when the results of Fonterra's Global Dairy Trade auction come through.

The dairy product online auction - at which Fonterra is the biggest seller - is considered a barometer of international dairy prices and the world's appetite for protein.

ANZ chief economist Cameron Bagrie said all eyes would be on the long-term delivery contract prices.

If those hold up to pre-botulism scare historic highs, it will indicate the scare will blow over.

"If not, all bets are off,'' he said.

Bagrie said there was downside risk from Fonterra's food safety scare to its forecast milk price to farmers of $7.50/kg milksolids, but it was too early to speculate further.

GOVERNMENT WILL INVESTIGATE

Prime Minister John Key has questioned why Fonterra waited so long to sound the alarm on a botulism scare affecting products including baby formula.

He said today was not the time for recriminations but he questioned why Fonterra waited until Friday to alert authorities that some products including infant formula might be at risk after it discovered a whey product could contain a bacteria linked to botulism.

Tests first alerted Fonterra to a potential problem in March. The product was manufactured more than a year ago, in May 2012.

Key was not aware of the reasons behind Fonterra's delay in notifying the Government and consumers but there were a lot of unanswered questions.

"There may be very good reasons for that ... but when you've got a company that's our largest company, our largest brand, our largest exporter, that is the flagship for New Zealand, and your whole business is about food safety and food quality, you think they'd take such a precautionary view to these things and say if it's testing for some reason in an odd way that [the product] would just be discarded till they're absolutely sure it's right.

"Now that's something the chief executive will have to answer one day."

The Government has promised a thorough investigation into the handling of the scare, but said that it would not pressure Fonterra until food safety issues were resolved.

FONTERRA BY THE NUMBERS

Fonterra is New Zealand's biggest company with annual revenue last year nudging $20 billion. It generates 25 per cent of New Zealand's export earnings.

It is the world's biggest dairy exporter, sending 95 per cent of the production of its 10,500 New Zealand farmer suppliers overseas.

The New Zealand dairy industry is worth $14b a year to the New Zealand export economy.

China, which has closed its borders to New Zealand milk powders in response to the botulism bacteria scare, is Fonterra's biggest customer.

The Asian giant is particularly sensitive to milk powder contamination warnings after a string of infant formula food safety scares. Two of them involved Fonterra.

In 2008 Fonterra's partner in China, the Sanlu dairy processing company, was at the centre of a baby milk melamine poisoning scandal. Six babies died, hundreds more suffered kidney problems. Sanlu went bankrupt.

Early this year, Fonterra was at the centre of another product contamination scare, this time involving the nitrate inhibitor DCD, residues of which were found in New Zealand dairy products for export.

Other important markets for Fonterra in Asia, India, Russia, Africa and the Middle East are also very sensitive to infant food and dairy product food safety warnings.

Fonterra, a farmer-owned co-operative with public units listed on the NZX and ASX, was formed in 2001 with statutory support from a giant merger of most of the dairy industry.

It makes up 89 per cent of the New Zealand industry today. It operates under the Dairy Industry Restructuring Act 2001.

It exported last year about 2.6 million metric tonnes of product, representing about 21 per cent of all global dairy exports, including 46 per cent of global exports of whole milk powder.

Fonterra also collects and processes milk from outside New Zealand and has farms in China.

Last year it collected and manufactured about 2.3 billion litres of milk from Chile and Australia.

The company employs about 10,000 people around the world. Its headquarters are in Auckland.

- The Dominion Post

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