1999 case hinted at Powdergate scandal

By KENT ATKINSON

The systematic evasion of Dairy Board constraints on export of produce such as high-value milk concentrates should be no surprise to officials probing the "Powdergate" scandal.

In May 1999 the Ministry of Agriculture and Forestry prosecuted a Mt Maunganui man in the Auckland District Court for mislabelling dairy produce for export.

Alexander Slaughter, a principal of Eastern Pacific Co, pleaded guilty to exporting mislabelled packaged milk protein concentrate and knowingly labelling milk protein concentrate in a way that was likely to mislead a person outside New Zealand as to the type of dairy produce it was.

Slaughter was fined $330, and no mention was made in publicity at the time of where or how he obtained the dairy product for export.

But MAF job sheets for the investigation, obtained by NZPA under the Official Information Act, show Slaughter told US investigator Nancy Grana that his container-load of 20,128kg of milk powder concentrate had been obtained from Kiwi Milk Products.

It had been relabelled with the word "Propheral" in felt-tip pen on stick-on labels, and was referred to on the invoice as "Propheral paper-coating pre-mix", a meaningless description. It was actually milk protein concentrate, fractionally under the Dairy Board's specifications for export-grade food with a protein content of 56 per cent.

Identification on the outside of the bags had been stripped at the Kiwi plant to avoid export restrictions, Slaughter told the investigator. He said that at the time New Zealand had four main competing dairy plants and that the sale and export of dairy products was restricted by the Dairy Board.

The Dairy Board Act 1961 required an export licence for any goods intended for export that contained more than 30 per cent dairy produce (by weight).

Ms Grana, who worked for the Wisconsin State food safety compliance section, said in a written report that she asked for documentation showing the concentrate had been produced at Kiwi, but did not receive it. Instead, she was faxed a note on a Kiwi Milk Products letterhead certifying that manufacturing factories numbers eight and 47 were accredited to an international standard. The note was signed by Paul Marra, group general manager (operations) of Kiwi Products.

Slaughter's Auckland lawyer, barrister Peter Thorp, told MAF senior investigations officer Frank Sheehan that Slaughter had told him he acted as an agent of the dairy company that supplied the product he exported.

Mr Thorp said Slaughter did not get paid any more "than what the dairy company sells at" and the payment for the goods was made to the dairy company, not Slaughter.

He had been asked to double-invoice, with the first invoice a "flat rate" charge for product of a specific description, and the second invoice passed on the actual cost of the goods to the customer. Mr Sheehan noted he was told by Mr Thorp: "Slaughter is actually able to dispose of reject product on behalf of the industry, and thereby gets greater value for the producer and the farmer."

MAF official Brian Burgess later explained to the investigator that product often was rejected from the export supplies of dairy companies only because it was not up to specification in one of its components.

Though Slaughter was prosecuted over a single container sent on March 29, 1998, from Auckland to Oakland, California, the invoice was marked "shipment 76".

In April 1998, MAF officials were told a further nine containers of "Propheral" were on the way to the United States.

A few days later, the Wisconsin inquiries ended with the recipient of the "Propheral", St Charles Trading of Lake St Louis in Missouri, claiming the product had been sent "in error". The milk concentrate was sent to Iowa to be used as stock food on farms.

"The dairy plant said they had been sent the wrong product, and because of the conflicting explanations no proof of blame or offending was detected," Mr Sheehan noted on his job sheet.

But a woman running a freight-forwarding company which dealt with St Charles Trading from 1997 told investigators that all goods imported from New Zealand had been imported as "MPC adhesives" or under other descriptions, such as Propheral and Hydrocoat 2000, but they had all been composed of dairy powders.

The woman at the freight-forwarding company, CC International, said the product was trucked from the wharf in California to plants around the US, and that all consignments imported by St Charles Trading were pre-sold.

In April 1998 an investigator saw 16 shipments on her books from New Zealand for St Charles in a four-month period, but over a year as many as 50 shipments had been received. In early May, US Food and Drug Administration investigator Bob Snell found St Charles Trading's address was only an office with no warehouse.

He reported that 14 shipments had landed from New Zealand since March 31, but the latest shipment had been declared as "animal feed supplements" on arrival.

When officials said they wanted to sample the container's contents, the declaration was changed to "human food" and the shipment was found to consist entirely of "Propheral".

In June 1998 MAF investigator Graeme Skeet asked Kiwi Co-operative Dairies general manager (marketing) Malcolm McCowan for sales records.

Mr McCowan told him he had been alerted earlier in the year that there was a "problem" with dairy powder in the US market in Wisconsin.

But Customs official Colin Smith told Mr Sheehan he had no knowledge of contact between the Dairy Board and Kiwi Dairies early in the inquiry.

- NZPA