By Rebecca Howard
WELLINGTON, New Zealand--Government officials in New Zealand
began poring over documents held by Fonterra Cooperative Group
Ltd., as criticism continued to mount over the world's biggest
dairy exporter's handling of a tainted milk scare.
The probe began as lawmakers weighed the economic impact of bans
imposed by China and Russia on some milk products following a
warning by Fonterra that it had sold products potentially
containing harmful bacteria. Dairy accounts for around a quarter of
New Zealand's exports, and the fallout risks harming the country's
hard-won reputation as a safe supplier of food.
Underscoring those concerns, the government sent officials to
Fonterra's offices in Auckland and Melbourne to find out what
management knew in advance of problems with its exports and to
track the tainted products. Aides of Prime Minister John Key said
the move to access a private company's office to verify information
was unprecedented under his government.
A key question for investigators is why Fonterra waited more
than 48 hours to inform lawmakers of possible contamination.
"I can't explain that gap in time," Mr. Key said. "That is one
of the very real issues that needs to be looked at."
The prime minister also noted that information provided by
Fonterra changed several times over the initial two days.
Fonterra has apologized for the food scare, which began Saturday
when it said some of its exported whey protein products may contain
Clostridium botulinum, a bacteria that can cause severe and even
deadly food poisoning.
Fonterra produced the whey protein for use in infant formula and
other products in May 2012. The issue was not identified until
March and intensive testing was then carried out to isolate the
specific bacteria. On Wednesday, tests indicated the potential
presence of Clostridium botulinum, which can cause botulism.
However, it took a further two days to inform the government.
Fonterra confirmed that the Ministry of Primary Industries, or
MPI, is studying data related to the contamination scare. Ministry
officials have also inspected the manufacturing plant where the
contamination is thought to have occurred.
"We have been working very, very closely with them," Gary
Romano, a company spokesman, told reporters.
According to the company, the contamination problem was due to a
pipe that hadn't been sufficiently cleaned and which has since been
destroyed.
Finance Minister Bill English said the government is assessing
the impact of the food-safety scare on the economy, which leans
heavily on agriculture exports like milk and has outperformed many
of its developed peers.
To date, China has banned whey protein products and base powder
formula used to manufacture infant formula and Russia has
reportedly banned all New Zealand dairy products. Products have
been recalled in several countries including China, New Zealand and
Malaysia.
Although China is a key market for New Zealand, taking around a
quarter of its dairy exports, Mr. English said those products
affected by the ban were worth only 125 million New Zealand dollars
(US$112 million) a year, or around 1% of dairy shipments.
"At this stage there is no indication the issue has escalated to
the point where it could have significant impact," Mr. English told
reporters.
Much will depend on how international customers respond to the
scare, and whether they look to replace New Zealand milk products
with those of rival suppliers like Switzerland and the Netherlands.
Mr. English said the outcome of the main price-setting auction for
milk, known as GlobalDairyTrade, later Tuesday would be a key test
of customer demand.
Still, lawmakers signaled their frustration at how Fonterra, a
cooperative of 10,500 individual farmers that is New Zealand's only
global brand, had handled its third quality issue with milk
products in recent years.
Fonterra owned a stake in a company involved in the melamine
scandal in China in 2008. Earlier this year, the company
acknowledged finding traces of the chemical dicyandiamide, or DCD,
in its milk powder. Fonterra at the time said the government
advised it the low levels found weren't a safety concern to
humans.
"Fonterra has let us down--its strategic communications have
been hugely lacking," said David Shearer, leader of New Zealand's
opposition Labour Party. "This issue is bigger than politics, but
Fonterra is not bigger than parliament."
A spokesman for the Financial Market Authority also said it has
concerns about how long it took Fonterra to disclose the
information about the current food safety scare to the share
market-- where it has a listed fund--and was seeking a response
from the company.
The scare risks straining relations between Fonterra and
companies that rely on its milk supply for their own products.
Fonterra said it has informed eight of its customers about the
possible contamination. Nutricia New Zealand Ltd., a unit of
Paris-based Danone SA (BN.FR), Coca-Cola China, a unit of
U.S.-based Coca-Cola Co. (KO), and Danone Dumex (Malaysia) Sdn.
Bhd. all announced precautionary recalls over the weekend.
On Tuesday, China's national quality watchdog asked a Chinese
arm of the U.S.-based Abbott Laboratories (ABT) to recall two
infant formula products.
Regarding possible compensation to these and other customers,
Fonterra said this hasn't yet been discussed. Nutricia declined to
comment on whether it would seek compensation.
-Write to Rebecca Howard at rebecca.howard@wsj.com
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