Fonterra's share price was unaffected by the news from Shanghai that 19 people had been arrested for selling around 300 tonnes of the company's expired milk powder.

In the first hour of trading, units in the Fonterra Shareholders Fund were trading at $5.90, unchanged from Friday's close.

"The market seems pretty relaxed about it," Mark Lister, head of private wealth research at Craigs Investment Partners said. "There has been zero market reaction."

The Shanghai Daily earlier reported that the suspects were allegedly managing a company, which was packaging expired products of Fonterra - one of the most popular brands in China - into smaller packages for resale below market prices.


Fonterra spokeswoman Maree Wilson said none of the people arrested were Fonterra employees, contractors or were associated with the company.

ASB Bank rural economist Nathan Penny said the incident showed that Chinese authorities were continuing to tighten the rules around food safety.

"The Chinese authorities are acting quickly to clean this issue up," Penny said.

"They are obviously looking to regulate food safety a lot tighter in China and, in a way, this is a good sign that they are acting on their promise to improve things at their end," he said.

Penny said China was increasingly sensitive to consumers' concerns about food safety.
On the information available, he said he doubted the would be something that Fontera would to be held to account over.

"Was this something that was in Fonterra's sphere of control? From what we know to date, it does not appear that they could have done much about it," Penny told the Herald.

Kelvin Wickham, who leads the sales and marketing of all Fonterra ingredients globally, said the company had rules for on-selling, but they only went so far.

"As far as we're aware, our reseller's done everything we'd normally ask them to do in terms of precautions and ensuring the product isn't used incorrectly," Wickham told RNZ.

"Clearly it's ended up somewhere in the supply chain where it's become aged, beyond the best-before date, and someone's decided to criminally try and profit off that expired product," he said.

China is Fonterra's biggest market.