Editorial: Fonterra poison milk scandal a disaster waiting to happen

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On the website of Fonterra - New Zealand's biggest company by turnover and the biggest exporter of dairy products in the world - is a page that refers to its "code of business conduct". Entitled "The Way We Work", it is described as being "based on our values and principles". The first such principle listed, ahead of anti-harassment, dignity and respect, ahead even of product safety, is "moral courage and leadership".

One has to wonder where those qualities were for the 40 days and 40 nights between August 2, when the company first became aware that the milk powder being made by a Chinese company in which it has a large stake was contaminated by a lethal chemical, and September 11 when it saw fit to disclose the matter.

Chinese dairy company San Lu, which is 43 per cent owned by Fonterra, is one of 22 companies caught up in a food scandal that Fonterra chief executive Andrew Ferrier has called "as bad as it gets": milk contaminated by melamine, a chemical used in plastics manufacture but which can raise the apparent protein content in food tests, has poisoned more than 6000 infants - killing at least four and leaving 158 suffering from acute kidney failure.

The dairy giant says it took steps to urge San Lu executives to conduct a full product recall but made little progress with a company in which it did not have a controlling interest. But the wording of its press release, so far from creating an impression of a company keen to show leadership, suggested a desire to distance itself from the crisis. The opening clause ("As a 43 per cent investor in San Lu") numerically quantified its innocence; the next four words ("Fonterra has been advised") cannily underlined its distance from the levers of power; and the punchline ("that San Lu is managing a quality issue related to its products") was a paragon of bland corporatespeak. This was the pronouncement, minutely scrutinised by lawyers and spin doctors, of a company that was far less interested in "moral courage and leadership" than it was in preserving its own position.

The parents of the dead and sick children would certainly not describe what has occurred as a "quality issue". They would call it poisoning, a word Ferrier conspicuously avoided in his press conference on Wednesday, preferring circumlocutions like "the situation in China".

Ferrier explained the delay by saying that the company hoped to exert influence within the Chinese system, and others have pointed to the importance of ensuring that the company's Chinese partners do not lose face - unquestionably an important factor in doing business in China. But he should not have needed this tragedy to realise that joint ventures with enterprises in developing economies must ensure quality control and the integrity of the raw-material supply chain.

When melamine contamination of pet food killed 16 animals in the United States last year, the manager of a factory that sells the melamine told the New York Times: "The laws in China are like that, aren't they? If there's no accident, there won't be any regulation."

Did that ring alarm bells in Fonterra HQ? The company has long known that milk quality in China is uneven and unreliable: it has established its own dairy farm there to show its partners how to work. But the pet-food scandal should have been all the warning the company needed that this was a disaster waiting to happen.

News this week that the US Food and Drug Administration had banned imports of drugs made at two plants in India because of concerns about manufacturing practice is a timely reminder that, as advanced Western industries turn to Asia as a source of cheap labour and as an untapped market for their products, the highest standards of vigilance must be applied to quality control.

Time will tell whether - and by how much - Fonterra has fallen short of those standards. But it may not seek refuge simply in the size of its shareholding in San Lu. And if it is a company committed to moral courage and leadership, it will not.

- Herald on Sunday

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