Fonterra is conducting an internal review but denies any wrongdoing after Chinese police arrested 19 people in Shanghai for selling around 300 tonnes of the company's expired milk powder.
The suspects were allegedly managing a company, which was packaging expired products of Fonterra - one of the most popular brands in China - into smaller packages for resale below market prices, according to the Shanghai Daily.
Fonterra spokeswoman Maree Wilson said none of the people arrested were Fonterra employees, contractors nor associated with the company.
"The exact details are unclear in the media reports we have seen to date," she said.
"Chinese officials have stated in the media that several different parties are allegedly involved in this case.
"Fonterra provides guidelines to the customers we sell products to directly on how expired or damaged product should be managed in a responsible way and we expect these to be adhered to. In this case, it seems the issues have occurred much further along the supply chain, not with a direct customer."
Wilson said Fonterra are "confident our systems are robust but we are reviewing the case internally which is part of our normal process to ensure our systems are working as they should be".
After a months-long investigation, the police discovered that one of the suspects sold the expired products to another company, who in turn allegedly resold almost 200 tonnes to distributors in Shanghai and in the Jiangsu, Henan and Qinghai provinces, who sold them on e-commerce platforms or in wholesale.
The authorities have seized 100 tonnes of these products and have shut down the websites selling them. It's latest scandal to hit China's beleaguered food industry, where food safety incidents, including sale of adulterated or expired products have been on the rise.
The dairy sector has been among the worst affected by such incidents.
In 2008, six babies died and 300,000 were affected by melamine-contaminated baby milk powder produced in China, prompting many Chinese citizens to begin turning to foreign milk products.