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Current as of 23/05/17 07:40PM NZST

Fonterra investigating claims of San Lu cover-up

Fonterra says it knew nothing about an alleged cover-up plan by the Chinese company San Lu, which is at the centre of a tainted baby formula scandal.

San Lu staff are reported to have made a six-figure deal aimed at suppressing reports about the problem in the Chinese media.

A Fonterra spokesman says the co-operative is following up on reports San Lu staff tried to stop news of the melamine contamination spreading.

A leaked memo, purportedly from dairy company San Lu's PR company, suggested paying people off to keep quiet about the emerging contaminated milk crisis.

Production at the Chinese company, 43 per cent owned by New Zealand dairy giant Fonterra, has been shut down and its products recalled after its baby formula was found contaminated with melamine.

The contamination has led to the deaths of four infants and illnesses to thousands of others.

Fonterra spokesman Graeme McMillan said the company, which has directors on the board of Sanlu, was not aware of any PR strategies.

"It was never discussed at the San Lu board or with any of the Fonterra related staff interacting with Sanlu," he said. "The board were totally unaware of it."

San Lu allegedly cut a deal worth hundreds of thousands of dollars to cover up negative reports about poisoned babies more than a week after Fonterra was alerted to the crisis, the Sunday Star-Times reported today.

Carried on Chinese weblogs, the memo, dated August 11, contained initiatives about how to suppress growing numbers of damaging references to San Lu

They included doing "anything to pacify victims and accept all they want to keep them silent for at least two years", and cutting a deal with local internet search engine Baidu to have negative online stories blocked.

The memo allegedly referred to San Lu having agreed to buy $640,000 of advertising with Baidu in return for stifling the negative publicity.

Fonterra has said it pushed for a public recall of the contaminated product as soon as it learned of possible contamination issues, but was hampered by Chinese processes.

Action was eventually taken when the New Zealand Government intervened.

Meanwhile, reports from China say San Lu may be sold to a rival in that country following the scandal.

However, Fonterra yesterday said it had not been approached about selling its stake in the company.

Fonterra has poured about $200 million into Sanlu since paying $150m for its initial stake in December 2005.

But it has now written down the investment's book value by $139 million, leaving it worth only about $62 million after Mr Ferrier said the San Lu brand could not be re-constructed.


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