Fonterra papers seized by MAF investigators

By PHILIPPA STEVENSON

Ministry of Agriculture investigators probing the Powdergate illegal exporting scandal have used search warrant to seize documents from Fonterra sites.

MAF Food dairy products director Tim Knox said the sweep of several North Island properties was part of a systematic information-gathering process.

He declined to identify the searched sites but the Business Herald understands they were properties of the mega dairy co-op that inherited the embarrassing $50 million saga from its merger partners, Kiwi Dairies and New Zealand Dairy Group.

"[The searches] should not be read as indicating a sudden escalation of the investigation," Mr Knox said.

"Rather, they indicate that MAF is working its way through a thorough investigative process and will continue to do so until it has reached a conclusion."

Meanwhile, the Business Herald has obtained revealing documents under the American Freedom of Information Act from the US Food and Drug Administration which impounded five shipments of New Zealand whey protein concentrate re-exported from Australia between November 2000 and last April.

The FDA detained 139 tonnes of the product over six months for misbranding, including a failure to list ingredients, a lack of clarity about the product's identity and no directions for use.

The documents raise questions over whether the exporter, Kiwi Dairies' New South Wales subsidiary Cottee Dairy Products, correctly valued the potentially high-priced product and whether its country-of-origin labelling breached US law.

Cottee also traded as Australasian Dairy Ingredients and both companies were placed in liquidation by Fonterra in December. The seized product was 5666 mostly 25kg bags of the sought-after concentrate containing 80 per cent whey protein.

The five shipments were potentially worth $13 million on the high-value US sports nutrition market where whey protein concentrate 80, as it is known among body builders and sports nutritionists, can sell for $95 a kilogram.

But the consignments were labelled as stockfeed and the papers indicated Cottee valued them at a little over $1 million, or around $186 a tonne.

In a "product bulletin" Cottee gave to the FDA the company was clear about its uses, stating "Cottee Whey Protein Concentrate 80 has excellent amino acid balance for use in nutritional applications including body-building formulations and dietary foods".

"It is commonly utilised in production of nutritional formulations as it has a particularly high protein-efficiency ratio."

The papers show the Australian Department of Agriculture, Fisheries and Forestry certified the product as "fit for human consumption".

Yet the company stated the value of one 536-bag, 12-tonne consignment that arrived in the US on November 29, 2000, as worth just over $US38,000, or more than $90,000. The bags varied in size but calculations show Cottee valued a standard 25kg bag at around $186.

In New Zealand, a 20kg bag of calf milk replacer sells for around $100.

Another 1144-bag, 28-tonne shipment held by the FDA after it arrived last April 25 was valued on records from Cottee's importing customs broker at more than $US93,000, or around $222,000 and $193 per 25kg bag.

Asked about the Cottee values, a dairy industry executive described them as "fairly ordinary".

"You'd have to ask yourself why they would bother," he said before speculating whether the protein may have been resold within America at the higher sports nutrition prices.

The FDA documents also confirmed the protein originated in New Zealand, although the Australian Department of Agriculture and the Australian Chamber of Commerce and Industry certified it as product of Australia.

In signed papers, Agriculture Department veterinary officers stated that "raw milk contained in this product was wholly produced ... and ... processed in New Zealand and further processed in Australia".

But a letter signed by Cottee technical director Sandra Cottee indicated that little processing was done in Australia.

"This product is not a food fabricated from two or more ingredients, therefore there is no requirement to list the ingredients other than the correct name of the only ingredient," she wrote in response to a FDA request.

An Australian Quarantine Inspection Service compliance officer, Russell Smith, said that, under Australian law, repackaging could sometimes be sufficient to warrant a product being labelled as product of Australia.

But exports to America should comply with US country-of-origin legislation.

The US Customs Service says a product's country of origin is the "country of manufacture, production, or growth of the article".

Substantially transforming the product in a second country could change its country of origin only "if a new article with a different name, character or use is created".

Mr Smith said investigations into the country of origin of Cottee products was part of the inquiry AQIS was doing at the request of New Zealand MAF.

Mr Knox said MAF would continue to liaise with US authorities over the country-of-origin labelling issue but because the product was sent from Australia it was outside MAF's jurisdiction and its own inquiry.

MAF was investigating the labelling of the product as stockfeed.

Some of the protein concentrate seized by the FDA was relabelled and allowed into the US, but the documents suggest that other consignments were refused entry.

At the end of last year, Fonterra claimed Powdergate had been brought to closure by board actions, including an inquiry which had shown no evidence of improper personal gain. But concerns remained about adherence to industry protocols.

During the inquiry, a Dairy Group employee was disciplined, and senior Kiwi executives Paul Marra and Malcolm McCowan were suspended. After mediation they resigned "on a severance basis".

Mr Marra and Mr McCowan were directors of Cottee, and Mr Marra and Mrs Cottee were directors of Australasian Dairy Ingredients.

Another Cottee director, Ross Cottee, Mrs Cottee's husband, was sacked last year. The Cottees were 25 per cent shareholders of the company that bore their name.

Last week, Fonterra chairman John Roadley said former Cottee chief executive Terry Walter had "gone" and was not a Fonterra employee. Records show Mr Walter's New Zealand company, SPD, bought Kiwi product, exported it and sold it to Australasian Dairy Ingredients.

Mr Roadley said last year that the board had strongly reaffirmed its confidence in Fonterra chief executive Craig Norgate, who headed Kiwi over the time of the suspect transactions.

Feature: Powdergate