Editorial: Fonterra's harsh Chinese lesson

Fonterra is New Zealand's best-known international company. The co-operative boasts that it has become the world's largest dairy exporter since being formed in 2001, dispatching 95 per cent of its New Zealand-made dairy products to consumers in 140 countries, The Dominion Post writes.

Its global reputation for quality now faces a real risk of being harmed because at least two of those consumers have died and another 1250 are ill, some seriously, having been fed contaminated milk powder sourced from Fonterra's China-based company, SanLu. Fonterra has held a 43 per cent stake in the firm since 2005 and has three directors on its board.

Just how much Fonterra knew about the problems with SanLu milk powder - and when - is hard to pin down. Some say first reports reached SanLu last March, but were not passed on to authorities; others say news reached SanLu directors last month.

Whichever is true, Fonterra chief executive Andrew Ferrier refused for days last week to front up to his domestic customers about an incipient public relations disaster. Did his "communications" team perhaps persuade him and chairman Henry van der Heyden to try to convince the prime minister to help handle the mess rather than publicly admit that their joint venture in China was in trouble?

It is to be hoped not. Transparency might have a short-term downside but buys respect in the longer term.

In very belatedly making comment, Mr Ferrier has tried to pass the buck to the Chinese, saying he has been frustrated at how the issue has been handled. SanLu had had to follow, he protested, guidelines from Chinese authorities. "We pushed and we urged [for a public recall] and we are relieved it's now in the public domain," he said from Singapore.

Sorry, Mr Ferrier - that isn't good enough. It might well be true that a SanLu supplier of raw milk, with his brother, has been adding melamine, which boosts protein readings in animal feed but is toxic to humans, to milk without SanLu's knowledge, causing hundreds of infants to develop painful kidney stones and two to die. Both men have been arrested.

But the consequences are also Fonterra's to bear. It is hard to see how SanLu milk powder, though popular in China because it is cheap, can keep being sold there, at least in the short term.

The mess is a lesson for all Kiwi companies entering into joint ventures under laws different from those in New Zealand. Just as kickbacks are - generally, at least - not the Kiwi way to do business, neither is secrecy about the possible danger of a company's goods, no matter where they are made.

Mr Ferrier and Mr van der Heyden are well-respected businessmen and political favourites. But their handling of this tragedy suggests they have much to learn about crisis management in an Internet age when being open is every bit as important as prevailing upon political contacts to come to one's aid.

Though the SanLu scandal is yet another blow to China's food industry, this one involves a New Zealand company with a good reputation. Because news of the sabotage is now in all its markets, Fonterra will be fortunate indeed if it emerges from this unscathed.

- © Fairfax NZ News