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Fran O'Sullivan: Fonterra back on China's blacklist

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Inquiry needs to set down rules to ensure quality problems are investigated before products are sold, not after.

Theo Spierings said that Danone found no irregularities when it did its own testing. Photo / AP
Theo Spierings said that Danone found no irregularities when it did its own testing. Photo / AP

Theo Spierings uses a deft analogy to illustrate the predicament Fonterra found itself in when flags were first raised in March that there might be quality issues with the whey protein it was using to blend infant milk formula at its Darnum Park plant in Australia.

"It's like a patient with raised white blood cells," Spierings said yesterday. The base whey powder was within industry specifications (known as Codex). But there were sufficient concerns about the presence of clostridium bacteria in the semi-finished product for Fonterra's scientists to keep on investigating to find out what was causing the "white blood cell" spike.

Trouble is, the semi-finished product was sold to Danone in China and "other markets".

One of those markets was New Zealand, where Danone's subsidiary Nutricia refined the 25kg bags of bulk formula from Fonterra's Australian factory and canned it as Karicare at its own Auckland plant in Mt Wellington.

This is the Karicare infant formula which New Zealand mothers (not simply Chinese mums) use to feed their own babies, and potentially affected product has been removed from supermarket shelves here after a series of recalls.

Spierings - who was preparing to visit a senior Chinese Minister in Beijing to discuss the food safety issue when I spoke to him yesterday - explained that Danone found no irregularities when it did its own testing before manufacturing products from the semi-finished product which Fonterra had produced.

He expected Abbott - which also sourced similar base infant formula made at Fonterra's Waitoa plant from the affected whey protein - to issue its own recall.

Spierings is now a practised hand at dealing with the inevitable questions which must be raised at inquiry level about why Fonterra's Darnum Park plant did not simply just quarantine the affected whey protein concentrate (WPC80) once it found a quality issue, instead of using it to make infant formula for Nutricia.

The raised white blood cells analogy might work for adult patients. But frankly where infants are concerned the Fonterra chief executive would be better advised to use another metaphor.

Questions should also be raised about the level to which Fonterra's Darnum Park plant raised the quality issue within the dairy giant's own management structure.

This was after all just a month after Fonterra found itself embroiled in a massive controversy in key markets (especially China) over the presence of the nitrate-inhibiting agrichemical DCD in its milk products.

An issue which caused widespread anger within the New Zealand dairy industry over the length of time it was kept secret from the market while Fonterra and the Ministry of Primary Industries worked on a gameplan.

Spierings maintained then that the potential presence of DCD in Fonterra powder had initially been kept confidential from him at a low level while scientists tried to get to the extent of the problem.

He later said he had implemented a new process so that any potential food safety issue was "elevated" to senior management level - including himself.

Spierings says this time round Fonterra informed key customers, regulators in New Zealand, China and elsewhere and the public as soon as it could after the presence of clostridium botulinum in whey protein concentrate known as WPC80 was confirmed on July 31.

The affected whey protein concentrate was manufactured at Fonterra's Hautapu site in May, 2012.

The issue is whether the developing problem with the affected whey protein was escalated to the chief executive's suite fast enough and why further production - particularly of infant formula - from the affected material was not stopped at that point.

The resultant Government-led inquiry needs to probe what really happened here and set down firm rules (by regulation if need be) to ensure quality problems with any sensitive food product - particularly those which feed babies - are investigated before the products are sold, not after.

Spierings formed a crisis team once he was informed of the issue on Thursday night. A board sub-committee was formed and the entire board informed later that day.

But the NZX was not informed until Monday morning which yesterday provoked a much deserved please explain from the Financial Markets Authority.

Behind the scenes, a huge hand-holding operation is under way to stop further damage to Fonterra's reputation as a high-quality, safe food producer.

Fonterra's corporate affairs and government relations boss Todd Muller held a phone conference with key business lobby leaders on Monday morning. These leaders later stressed to media the "transparency" that Fonterra had adopted on the issue.

Spierings readily concedes that Fonterra did not have all the answers when it went public shortly after midnight on Friday and before its initial press conference on Saturday morning.

But he has since managed to get letters of comfort from some of the chief executives of the eight customers who bought the affected base whey protein (or bought products that Fonterra manufactured for them from the affected material) to say the New Zealand company had handled the issue well.

A report has been delivered to China's regulatory authority Aqsiq and Spierings was to emphasise its contents during his meeting with the Chinese Minister yesterday.

He hopes that the launch of Fonterra's own infant formula brand in China this year will not be delayed by this new issue and that - after a period of reflection - the NZ dairy giant does get to take part in the conversations in China over the restructuring and consolidation of the Chinese dairy industry.

The problem Spierings faces is that the Chinese dairy industry will now use the opening Fonterra has provided to boost its own reputation.

It is interesting to note that shares in Guangzhou-based infant formula maker Biostime and China Modern Dairy both surged by 9.8 per cent on the Hong Kong exchange after the Chinese authorities banned Fonterra's whey protein.

Reports suggest that Want Want China, a company that sources most of its raw milk from Fonterra, tumbled 3.2 per cent.

Couple those realities with the fact that Fonterra has now made it on to the Chinese black list three times this year and the New Zealand company has a problem.

First there was the DCD affair where NZ's top officials in Beijing had to present egregious apologies.

Then the National Development and Reform Commission's antitrust investigations against several foreign dairy companies and subsequent decision to rope in Fonterra as it is the OEM manufacturer for several of the foreign companies. This has already caused those companies and Fonterra to drop prices.

Now there is clostridium botulinum.

The brute reality is the shortage of dairy products within China means Fonterra will still be the supplier of choice until, and if, China can rebuild its own industry. But the days of princely NZ premiums for high quality proteins could be numbered.

- NZ Herald

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