Elephant in the room is the safety of infant formula which Chinese parents have been buying in droves.

New Zealand Ambassador Carl Worker's fulsome apology for the "confusion" caused to Chinese consumers over the detection of DCD residues in New Zealand-sourced milk is clearly an attempt to stop the trade risk to New Zealand dairy exports escalating in China.

The problem with this developing fiasco is that the major players have been addressing the issue from their narrow perspectives rather than that of Chinese consumers who have been the major driver of the New Zealand dairy industry's rapidly increasing milk powder sales post the 2008 Sanlu melamine disaster, to the point where it provides 80 per cent of China's foreign dairy imports.

The elephant in the room - which has been glossed over in official statements from New Zealand - is the safety of infant formula made from New Zealand-sourced milk powder which Chinese parents have been buying in droves for their babies.

Chinese media reports make it clear there is widespread scepticism over the lengthy time it took from September (when Fonterra's tests first isolated dicyandiamide in milk sourced from 5 per cent of its farm suppliers) to last Thursday when the suspension of its use in dairy farming was announced.


There was always going to be a major perception gap but there are no obvious signs that the industry and authorities had formed a battle plan to counter the trade risk.

It has left the New Zealand team in Beijing fighting from behind the eight-ball in a public relations war that is already having serious consequential effects on some of New Zealand's smaller dairy product exporters, as the Business Herald's Christopher Adams reveals today.

The ambassador - who is a consummate pro - did not let on to Chinese media present at the Beijing Embassy for a special press conference on Monday that his "NZ Inc" team was not given a heads-up before Thursday's disclosure that DCD's use on pastures had been suspended by manufacturers after Fonterra's tests disclosed the trace residues.

This is standard operating procedure in food safety issues.

But because the Ministry of Primary Industries and Fonterra had determined there was no health risk from the trace residue, they did not treat the issue as one of food safety.

Thus the Chinese authorities were not forewarned by our diplomats that the suspension was to take place.

As Fonterra boss Theo Spierings explains in an email to me printed alongside this column: "We ran tests on all our products from across all our sites. We found minute traces of DCD in products made in September ...

"There was no need to panic or ring alarm bells - our products are safe."

The NZ side expects that when the Chinese authorities have completed their investigations - particularly the Ministry of Health - they may well agree that there was no food safety issue.

Taiwan - which also imports substantial amounts of NZ milk powder - has said initial tests have shown that imports of baby milk formula from New Zealand do not contain any traces of a potentially hazardous substance.

But not giving the Chinese authorities a heads-up was a mistake and it has led to a reputation risk in-market, something Worker acknowledged when he told the Chinese journalists that in hindsight "it was regrettable" as the lack of forewarning had made it easier for confusion and unnecessary doubt among Chinese consumers of NZ dairy products to occur.

Worker's job was to stress to Chinese journalists that he was there to clarify the facts, correct media reports and reiterate to customers and consumers of NZ dairy products that there is absolutely no food safety issue risk.

Trouble is by the time Worker - together with Fonterra China boss Kelvin Wickham - fronted the Chinese media he was already fighting a perception issue.

The vice-minister of China's General Administration of Quality Supervision, Inspection and Quarantine, Wei Chuanzhong, had issued a "Please Explain" earlier that day asking for a "detailed risk assessment report" on New Zealand dairy products after the "potentially harmful" chemical residue was found in them.

AQSIQ was not satisfied with the New Zealand Ministry of Primary Industries' rather cursory press statements.

They wanted to know exactly where the contamination occurred: which products, which batches and which companies were involved.

Fonterra advisers have played down to local media the extent of local Chinese consumer and media reaction.

But China Central Television (CCTV) has been headlining the issue as a "scandal"; there have been many lengthy reports in Chinese media and Chinese journalists reacting to consumer concerns are taking the issues seriously.

The Ministry of Primary Industries' statement that "a person weighing 60kg (132lbs) would have to drink more than 130 litres (34 gallons) of milk to reach the European Commission's acceptable daily intake for DCD, and "considerably" more to have adverse health effects, has been much quoted in New Zealand media.

But Chinese concerns are not sparked by the potential adverse affects on a 60kg (9 stone) person, but by that on tiny babies who are dependent on infant milk formula sourced from New Zealand.

The lack of a comparator for the possible health effect on an infant drinking infant formula containing residues of DCD was ignored in the statements issued by New Zealand. But the information gap has been quickly filled with speculation by Chinese netizens.

On Weibo, "Jane" spoke for many when she noted that "80 per cent of China's milk comes from New Zealand, but NZ milk powder isn't safe either. Last week the news came out that a low amount of a poisonous residue DCD has been detected. Although the results of whether it will create side effects in infants has yet to be released this news will create unease".

Late Monday night, CCTV revealed that quality inspectors and the Shanghai customs authorities had launched an investigation into dairy products in three cities: Shanghai, Guangzhou and Tianjin. Their focus is on three companies which are known to use NZ-sourced dairy products: Abbott, Mead Johnson and Wyeth Dairy.

CCTV reports quality inspectors and the Shanghai customs authorities say any product which contains DCD will be sealed and destroyed. It said the developing issue was "a scandal" and noted that Fonterra had no plans yet to suspend sales of products.

As a report in the New Culture newspaper headlined "NZ Ambassador apologises for milk powder containing DCD" revealed, Chinese media are asking tough questions: "If there is no danger to health, why temporarily stop the use of DCD?"

Worker's response was: "This was because there is no commonly accepted standard for DCD residues and international consumers expect New Zealand dairy products to have zero residues."

The reports suggest that China's authorities also expect the NZ dairy products to have zero residues.

Tests under way in the three Chinese cities are unlikely to uncover much product containing DCD residues as there has been no spraying since spring.

It is a debatable point whether, if New Zealand authorities had disclosed the DCD residue in September, or even October when the results were confirmed, Chinese authorities would have let affected products on to the supermarket shelves. Their response suggests not.

There are also questions that should rightly be asked over the Fonterra Shareholders' Fund prospectus.

The Wall Street Journal's Lucy Craymer - a Dow Jones staffer - upset Fonterra by her reporting over the "toxic" chemical.

But Craymer's questioning of Fonterra's decision not to disclose the pending issue in its November prospectus was an obvious one for any financial journalist and also market authorities.

Read Fonterra chief executive Theo Spierings defence of Fonterra's actions on the DCD issue here.