Leaked memo alleges milk 'cover-up'

Dairy company Sanlu allegedly cut a $640,000 deal to cover up negative reports about poisoned babies more than a week after Fonterra was alerted to the melamine contamination crisis, according to a leaked memo.

Carried on Chinese weblogs, the memo, purportedly from Sanlu's PR company, notes growing numbers of damaging references to the company, which is 43% owned by Fonterra, in connection to infant kidney failures, and lays out strategies for addressing the issue. These included silencing victims, and paying off Baidu, China's largest internet search engine, to remove negative references from its web searches.

The memo recommended Sanlu "do anything to pacify victims, and accept all they want to keep them silent for at least two years".

The memo also said a "PR protection" deal had been negotiated with Baidu, in which Sanlu agreed to buy $640,000 of advertising with the search engine, in return for having negative stories blocked from search results.

The memo is dated August 11, nine days after Fonterra was alerted to contamination of Sanlu's popular infant formula with melamine, a chemical used in the manufacture of plastics and glue. Fonterra says it pushed for a public recall as soon as it learned of the issue, but this was blocked by the board and local authorities, who opted to recall the product without alerting consumers. Fonterra believed local authorities had reported the matter to central authorities in Beijing, according to chief executive Andrew Ferrier, who said last week he was "shocked" by reports this had not happened until New Zealand embassy staff intervened on September 9.

Fonterra spokesman Graeme McMillan said the New Zealand dairy giant knew nothing of any public relations strategies devised to cover up the scandal. "It was never discussed at the Sanlu board or with any of the Fonterra related staff interacting with Sanlu," he said. "The board were totally unaware of it."

Fonterra - whose ties to Sanlu extended to a handful of technicians and three directors, only one of whom spoke Mandarin - has been criticised for a lack of oversight of its $200m investment in the disgraced company, which allowed it to remain oblivious to the contamination issue for so long. Sanlu began receiving complaints from the parents of sick children in December, but did not begin testing its products until June; Fonterra learned of the problem only in August.

The memo first appeared on September 12, allegedly leaked by a Sanlu staff member. Chinese news reports quote Baidu as denying any agreement with Sanlu as described in the memo.

Beijing media reports say Sanlu may be sold to a competitor and the parent company, of which Fonterra owns 43%, forced into bankruptcy. Fonterra chief financial officer Guy Cowan dismissed the reports as speculation.

In another development yesterday, there are reports lactoferrin has also been contaminated with melamine. Only three New Zealand dairy companies produce lactoferrin - a milk protein used in sports drinks, infant formula and capsules.

The Food Safety Authority has ruled out deliberate adulteration, and says the contamination did not present any health risk.

- © Fairfax NZ News