Agribusiness Report: Milk scare a missed opportunity

Photo / Dean Purcell

Some small businesses have paid a heavy price over the baby formula botulism debacle, writes Michael Barnett.

Almost a year ago a second quality scare in the dairy industry halted the exports of infant milk formula from New Zealand to China, placed at risk the businesses of a number of small and medium exporters and damaged the reputation and brand of New Zealand in China.

Some of those exporters are now out of business, some have had to face significantly reduced turnover and margin and many have had to invest heavily in the China distribution sector just to retain a presence in this market -- money that could have been invested in growing market share and building their export businesses.

Small and medium exporters scrambled to help themselves, visiting China in a bid to save their businesses and the millions of dollars they had invested in this market. They also called for Government support, which occurred in varying degrees. It's worth looking back 12 months on, in the knowledge that both individual businesses and New Zealand have paid a heavy price.

That price is millions of dollars in exports and business investment, the potential of future plant closures in New Zealand and the knowledge that in the same period of time Europe went from having a 15 per cent tariff into China on infant milk formula to 5 per cent, Switzerland signed a free trade agreement with China and New Zealand hasn't responded with a cohesive "in market" strategy to compete.

Government agencies were quick to suggest that the sector was aware the Chinese Government had them on watch and intended to impose change so should not have been surprised -- and technically they were correct. The Chinese domestic market was undergoing change and the Chinese also wanted change for New Zealand but our Government agencies chose to play down the threat to our exporters and respond to suit our largest trading partner.

An alternative strategy should have been for our Government agencies not to view themselves simply as a regulator, but in a partnership role for the good of business and New Zealand. There was an opportunity to bring the whole of the New Zealand industry together and ensure there were standards and codes of practice that were being complied with and that track-and- traceability technology was a fundamental component for the future.

Instead China imposed a limited audit on New Zealand restricting the number of manufacturers and brands that could be a part of the supply chain to China.

Some of the approved manufacturers also imposed a restriction on the brands they would do business with, placing some exporters further at risk. Some manufacturers who have not been approved now face the risk of closure, if the approval process is not accelerated.

The irony of all of this is while the Chinese markets were beating up New Zealand for a botulism scare that did not exist and tidying up their own market, critically in need of upgrading -- they are building export plants in New Zealand (one in South Canterbury and one in Pokeno) which will combine Chinese and New Zealand product that will be exported for Chinese consumers -- probably under that trusted New Zealand brand.

We need to acknowledge that in the Ministry for Primary Industries there has been some leadership change which has been positive. New Zealand Trade and Enterprise have been outstanding with their support and the PM's office responsive and constructive. But we also need to do some things differently. History will show that elements of this experience are a repeat of what has happened in the meat industry and we need to ensure it isn't repeated for other sectors and emerging opportunities.

Yes the dragon will tighten its grip -- but the Kiwi should draw a line :

• We are an exporter of food and beverage with over 100 years of success.

• We are limited by capacity but not capability.

• We have a brand and a reputation that is internationally credible.

• We are a good partner and easy to do business with.

From a New Zealand Inc. perspective we need to :

• Have Government and business in a genuine partnership.

• Have a shared leadership model where there is an understanding of each other's resources strengths and weaknesses and where both parties know how to prioritise.

Michael Barnett is Chairman of the New Zealand Infant Formula Exporters Association.