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The Chinese milk powder scandal is as bad as it gets for a food company, an emotional Fonterra chief executive said yesterday.

Andrew Ferrier's comment came after China's health minister said contaminated milk formula had killed a third baby.

The number of infants poisoned had soared to 6244, including 158 with acute kidney failure.

The snowballing crisis was "gut-wrenching", Mr Ferrier said.

Fonterra was not counting the cost of the crisis on its 43 per cent stake in the Chinese company San Lu, which made the contaminated products.

"We're not sitting here counting money, we're sitting here just making sure we do the right thing.

"Fonterra wants to do whatever it can to help the situation in China.

"Right now, we understand the Chinese Government has stepped in and is looking after the health of the children.

"We will see ... if there's something else we can do."

Asked if he was ruling out compensation for parents of the sick children, Mr Ferrier said the co-operative had to find out how the Chinese system worked and do what it could to help.

Fonterra paid US$107 million in 2006 for its holding in San Lu.

It emerged yesterday that San Lu is one of 22 companies whose products have tested positive for the industrial chemical melamine.

Only one company, in the southern province of Guangdong, exports its products - to Bangladesh, Yemen, and Myanmar.

Chinese police have detained San Lu's general manager Tian Wenhua, the Xinhua news agency said.

In Beijing yesterday, Chinese parents were taking babies for medical checkups, voicing fear and confusion over the contaminated products.

"I don't know. I really don't know," said An Fengyun, a 34-year-old mother, when asked what she would feed her 2-year-old daughter, who cried in her arms for an overdue lunch. "We are all very worried about this."

The anxious mother was one of dozens of parents or grandparents who took babies for checkups at Beijing's Capital Paediatric Research Institute.

Dairy companies affected include China's biggest milk producer, the Mengniu Dairy Group, which yesterday recalled three batches of baby formula made in January.

"We are very sorry that consumers have been injured physically and psychologically because of these batches of milk powder," a Mengniu spokesman said.

Mr Ferrier said San Lu received calls about sick babies in March, but tests at that time showed there were no quality issues.

On August 2, the San Lu board was told of the contamination.

It contacted authorities, and a trade recall started on August 6.

"You can't test for every poison out there," Mr Ferrier said.

"To our knowledge there isn't a dairy company in the world that tests for melamine."

But a public recall started only last week, when the New Zealand Government said it blew the whistle in Beijing after being approached by Fonterra.

Mr Ferrier said Fonterra had decided it would have more influence if it worked within the Chinese system, and there was enormous relief when the situation became public.

"We said that in our view a public recall would be more effective; they in their own judgment said they were not in a position to do it," he said.

"We'll never know if we had gone public at the beginning whether it would have made a difference at that time."

The usually calm chief executive went on the attack when a questioner in a press conference accused Fonterra of fobbing off the media.

"Well, first of all I resent you saying we're fobbing off this issue of the health of children. That is first and foremost priority on this," he said.

"We did the thing that in our judgment was going to get the product off the shelves as quickly as we possibly could."

Two brothers who ran a milk collection centre were arrested this week on suspicion of adding melamine to milk sold to San Lu.

Two other milk dealers, who also supplied San Lu, were arrested yesterday, the Hebei Province Public Security Bureau said.

Melamine could have been added to milk that had been watered down to boost the apparent protein content to pass quality tests.

All San Lu products have been recalled, the Chinese Government has stopped the company's production and it is understood the provincial governor has told San Lu's chairman to resign.

On Tuesday, Fonterra said its own Chinese business was making a voluntary recall of one batch of Anmum Materna milk manufactured and distributed under licence by San Lu, because of contamination fears.

All other Anmum and Anlene products had been made using only milk imported from New Zealand.

Other dairy companies caught in the scandal include Beijing Olympics sponsor Inner Mongolia Yili Industrial Group.

Food inspectors in Hong Kong ordered a recall after melamine was found in an ice cream bar made by Shanghai Yili AB Foods.

China's Centre for Food Safety said the amount of the chemical in the ice cream would not be a major health threat for anyone eating a normal amount of the product, but small children should not eat it.

CHEMICAL IN THE MILK
What is melamine?
It is an organic base chemical, rich in nitrogen, that has fire-retardant properties.

What is it generally used for?
The chemical is used to produce industrial products which include flame retardants, countertops, glues and fertilisers.

Why was it put into babies' milk powder and formula?
Because water was added to increase the volumes of milk, melamine may have also been added to restore diluted protein levels. It may also have been used to fool quality food tests which measure protein by nitrogen levels found in food.

What are the effects of melamine on people?
Consuming melamine can lead to reproductive damage, bladder or kidney stones and bladder cancer.

Has it been found in other Chinese food products?
Yes. Last year, melamine in Chinese pet food killed many pets in the US.

- additional reporting: NZPA