Danone was forced to recall products in eight markets following the 2013 botulism scare, which took place after Fonterra wrongly suspected that a 38 tonne batch of whey protein - used to make a range of products including infant formula manufactured by the French company - had been contaminated.
The firm's Karicare and Dumex brands were particularly hard hit in China, where consumers are highly sensitive to food safety scares following a string of industry scandals, including the 2008 melamine contamination, which killed six babies and sickened thousands more.
Late last year, Danone sold its loss-making Dumex China business to Chinese formula maker Yashili for 150 million ($249 million).
In a report published last week, China's Xinhua news agency quoted industry sources as saying Karicare had suffered "sharply declining sales" in the Chinese market.
Simon Page, managing director of infant formula exporter Biopure Health, said Karicare had been considered the top New Zealand-made formula brand in China but, according to Chinese news reports, sales fell sharply following the botulism scare.
"The double blow of the DCD and botulism scares was a disaster for our country's dairy reputation and the withdrawal of Karicare from China highlights this and is certainly unhelpful in the long term," Page said.
The DCD scare took place in January 2013, when traces of the nitrate inhibitor used on farmland turned up in New Zealand milk products, sparking concern among Chinese consumers.
Nutricia's profit plunged from $61 million in the 2012 calendar year to just $2 million in 2013 and a $1.2 million loss in 2014, according to financial statements lodged with the Companies Office.
"The botulism scare caused serious damage to Danone Nutricia's business," a spokeswoman for the French company said in 2014.
Karicare was sold through both official and unofficial channels in China.
In addition to Danone's direct exports, large volumes of Karicare - often purchased from New Zealand supermarkets - passed into the Chinese market through so-called "grey channels".
But an industry source told the Business Herald in November 2013 that demand for Karicare had dried up in China following the botulism scare and a number of Auckland-based exporters involved in the unofficial trade had gone bust.
Following the scare, Danone cancelled supply agreements with Fonterra and launched a $1 billion lawsuit against the co-operative.
It alleged Fonterra breached the Fair Trading Act and was seeking damages expected to exceed 630 million.
But that High Court action was put on hold at Fonterra's request so that ongoing arbitration, which began in Singapore last month, could happen first.
The Danone spokeswoman said Karicare was enjoying strong growth in Australasia, leading the category on this side of the Tasman with 46 per cent market share.
"Last year alone, the Karicare brand sales grew by 46 per cent in Australia and 16 per cent in New Zealand," she said.
Meanwhile, the spokeswoman confirmed that Danone had sold its Mt Wellington manufacturing plant.
She said Danone was investing $25 million into turning its Airport Oaks blending and packing plant in Auckland - acquired from Sutton Group 2014 - into a "mega-facility" with features including a new gravity blending tower.
"As a result, the company will cease operations at its other blending ... facility at Mt Wellington."
Timeline
January 2013 Traces of DCD, a nitrate inhibitor used on farmland, turn up in NZ milk products, sparking consumer concerns in China.
August 3, 2013 Fonterra announces that a 38 tonne batch of whey protein may have been contaminated by a dirty pipe at the company's Hautapu plant, in the Waikato. Danone is forced to recall products, including Karicare, in eight countries.
August 28, 2013 The Ministry for Primary Industries says the bacteria found in Fonterra's whey concentrate was not the botulism-causing clostridium botulinum.
November 2013 Karicare manufacturer Nutricia, a subsidiary of Danone, confirms a round of job cuts in NZ, saying overseas demand for products has been slow to recover from the botulism scare.
October 2013 Danone says the botulism scare would have a "significant impact" on its 2013 results, with full-year lost sales estimated at €350 million.
January 2014 Danone launches legal proceedings against Fonterra related to the scare and ends its supply contract with the dairy co-op.
