Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Govt too slow on China dairy concerns

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Infant formula is a big deal to China and it's vital we have rigorous, transparent processes in place.

Prime Minister John Key with Chinese Premier President Xi Jinping. China has been clear the special relationship status New Zealand enjoys comes with obligations. Photo / Supplied
Prime Minister John Key with Chinese Premier President Xi Jinping. China has been clear the special relationship status New Zealand enjoys comes with obligations. Photo / Supplied

Food safety is the hottest of issues for the Chinese public and there is a great deal of pressure on the Government to show the food scandals of the past few years are behind it. Last week I wrote that there was a sense in which New Zealand's honeymoon with China was over. I highlighted several things that have gone wrong with our trade relationship this year that seem at odds with the "best buddies" image portrayed by John Key's visit to Beijing in April.

It's worth pointing out that I don't mean our relationship is on the rocks. It's just that we are entering a new phase; you know, the serious long-term part that you have to work at for a happy marriage. And there is always the opportunity for a second honeymoon.

That is worth pointing out because "the honeymoon is over" makes a good headline. It didn't in this country, where the infant formula story hasn't really made it out of the business pages. But in China the comments and large excerpts of the column ran as Page 3 news in the Global Times - the popular tabloid sister paper of the official state newspaper the People's Daily.

That follows the recent visit of Chinese TV crews to New Zealand to investigate the infant formula industry and other Chinese media translations of stories and columns by Business Herald reporter Christopher Adams and Fran O'Sullivan.

Last Friday two new and hugely significant articles ran in the People's Daily. One was an interview with the Chinese Consul-General for New Zealand Niu Qingbao. He goes in to bat for New Zealand, assuring the Chinese market that New Zealand milk powder is safe. But the seriousness of the interview and the fact he has to give that assurance should give us pause for thought.

The other interview was with Zhang Fan, China's Economic and Commercial Consul. He points out that New Zealand acts responsibly on food safety. But he is quite explicit about wanting our Ministry of Primary Industries to be more public and transparent about our milk quality testing processes and regulatory guidelines. He says China is New Zealand's largest customer and the onus is on us to restore Chinese consumer confidence.

In both these interviews two examples are used to highlight Chinese public concern about milk powder; the Sanlu melamine scandal of 2008 and the DCD issue here in January when low levels of a fertiliser chemical showed up in some New Zealand milk powder. The levels were deemed safe and use of DCD was abandoned here, but New Zealand milk safety remains a big news story in China. In this country we're not really getting the full scale of it yet.

Why did New Zealand meat get stopped at the Chinese border? That hasn't really been adequately answered yet by our officials. Why, if the relationship with Beijing was really as strong as the photo opportunities John Key's visit in April suggested, couldn't a paperwork issue like this be solved in couple of days?

Trade relations are very complicated and very subtle. We know the Chinese Government was very disappointed in New Zealand's official reaction to the DCD issue. It would have liked more effort to reassure Chinese consumers that this was not another Sanlu. It probably would have liked some kind of product recall. That was something we couldn't do. Fonterra had the science to prove DCD levels were not a public health risk. And recall just for perception issues would have been far too damaging to contemplate. It would have been jumped on in other markets such as Europe and Japan as a sign of something more serious. It's likely Key had to make a difficult call on this issue, one which the Chinese would not have liked.

Infant formula is a big deal in the scheme of New Zealand exports to China - not because it is our biggest earner, but because it is the product around which our wider relationship with China pivots. It is a product the Chinese consumers really, really care about. The country has a one-child policy. Many young mothers go back to work and rely on grandparents to care for and feed their babies. The Sanlu infant formula scandal was a nightmare news story for Chinese parents who rely on infant formula.

More generally, food safety is the hottest of issues for the Chinese public and there is a great deal of pressure on the Government to show the food scandals of the past few years are behind it.

In the past couple of months China, in a very Chinese way, has been making it clear the special relationship status we have enjoyed for five years comes with obligations, obligations they don't feel we've been living up to. The New Zealand Government appears to have been slow to read these signals.

Presumably officials have been working hard behind the scenes. But the Ministry of Primary Industries and New Zealand Trade & Enterprise (NZTE) seem stretched, possibly under-resourced.

Now there is a new message coming through from China's state-owned media; our Government should be doing more to assure Chinese consumers that this country has a rigorous industry body controlling the processes around infant formula quality. This doesn't seem unreasonable and it doesn't seem particularly insurmountable. We owe it to ourselves as much as we owe it to our customers, of any nationality, to have transparent processes in place to ensure the food we sell is the safest in the world. That's why people will pay a premium for New Zealand dairy and we must not squander that reputation.

But it doesn't leave much time for industry infighting and it requires a guiding hand from the Government. It isn't easy to unite what is a new and relatively fragmented industry group which includes numerous small players.

It is good to have Fonterra back in the branded infant formula game in China, if just to bring some heavyweight resources to the task at hand.

Again, there is no suggestion that infant formula from New Zealand is unsafe or not of high standard. Broadly the sector seems in relatively good shape when you consider the speed of its growth and how unstructured and unregulated it has been.

But it needs a stocktake and an audit and it probably needs some kind of unified industry initiative to offer assurance around manufacturing standards and ensure consistency in the marketing of the product. That should avoid putting onerous costs on the good niche players in the industry but it needs to set clear guidelines and weed out any cowboy operators, if indeed they are there.

It also needs to make a splash with the Chinese public to ensure the long-term future of New Zealand infant formula as a premium product.

The Government and New Zealand's agricultural bodies need to recognise that how we handle this issue now has a huge bearing on the future of our special relationship with China. How we proceed from here is being watched very closely. Here's hoping for that second honeymoon.

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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