China Consumer

Spoiled milk

More scares for New Zealand’s Fonterra

Not fit to drink...

The bad days of 2008 are long gone, declared Andrew Ferrier, chief executive of Fonterra, the world’s largest dairy exporter, in April.

Ferrier was referring to the milk-powder scandal that cost the Auckland-based co-operative so dearly. As a result, Fonterra’s Sanlu investment was junked, and much of its reputation with it.

Did Ferrier make his recovery speech too soon? In early August three infant girls in the city of Wuhan and a fourth in Beijing were reported to be showing sign of premature development, including growth of breasts, according to the state-run Xinhua news agency. As it turns out, they were all drinking the same infant formula from Synutra – a Nasdaq-listed formula maker based in Qingdao – which claims Fonterra as one of its lead suppliers.

The cases quickly led to fears among parents feeding their own babies with the same Synutra formula. Similar cases were reported in Guangdong, Shandong, Anhui, Jiangxi and Beijing. (The anxiety is understandable. Back in 2008 the first milk scandal claimed the lives of six babies and affected 300,000.)

Subsequent medical tests found levels of oestrogens circulating in the bloodstreams of the afflicted infants reaching those found in most adult women. Of course, oestrogen hormones are forbidden in milk powder products.

Synutra quickly came out with a statement, insisting that it had never added hormones to its milk products. The company added that two of its milk formula brands used whole milk powder supplied from Fonterra, thus throwing Fonterra back into the spotlight.

In response, Fonterra released a statement of its own claiming to be “100% confident” about the quality of its products. It acknowledged that it supplies milk powder to Synutra but says the Chinese company also buys milk from domestic sources, as well as whey powder from Europe.

Synutra, notably, was one of 22 Chinese dairy companies found to have products contaminated with melamine in 2008 – though the levels discovered were small compared with Sanlu.

But last week, the Ministry of Health announced that it had not been able to find any link between the high levels of oestrogen found in the infants and their consumption of Synutra formula. Still, with confidence in the regulators at low levels, many parents took their infants to hospitals for health checks.

For Fonterra, the latest scandal could not have come at a worse time as it has recently embarked upon a large expansion plan. In April, Ferrier told the FT that Fonterra had plans to increase exports to China, as well as invest in new Chinese dairy farms. He also hoped to establish a consumer brand there.

China now counts as Fonterra’s fourth largest market, and last year imported 247,000 tonnes of raw milk from New Zealand. Before the reports of puberty symptoms hit the press, the country was expected to import over 140,000 tonnes of milk powder too, says 21CN Business Herald.

It is too early to say whether Fonterra’s plans will be derailed by the latest milk scandal. But the industry in general is struggling to restore consumer confidence when there appears to be a dairy disaster almost every week.

Back in July WiC reported that melamine had reappeared in milk samples (incredibly, in products that should have been destroyed following the 2008 crisis). The China Daily reported this Tuesday that police had detained 47 more suspects for allegedly participating in the distribution of melamine-tainted milk powder, including stock from the earlier contamination.

The stream of bad publicity, as well as the apparently lacklustre enforcement of food safety standards, will not surprise a weary milk-buying public. Commenting on the latest scandal, an unnamed official from the national food safety office was quoted by Xinhua as saying that it reflected “serious loopholes” in supervision and poor management by local authorities (see WiC69 for more on China’s poor milk quality, and the debate on setting product standards).

Ferrier is probably feeling a sense of déjà vu too.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.