Fonterra CEO apologises, sees China dairy curbs lifted within days

Fonterra, the world's leading exporter of dairy products, apologised on Monday for a milk powder contamination scare in China that risks tainting New Zealand's reputation for food safety.

The company said at the weekend it found bacteria that could cause food poisoning in some products. Contaminated whey protein concentrate had been sold to China, Malaysia, Vietnam, Thailand and Saudi Arabia and used in products including infant milk powder and sports drinks, it said.

Rushing to China, one of Fonterra's biggest markets, CEO Theo Spierings sought to reassure customers, telling local media that processing methods would kill off harmful bacteria.

"We really regret the distress and anxiety which this issue could have caused," he said. "We totally understand there is concern by parents and other consumers around the world. Parents have the right to know that infant nutrition and other dairy products are harmless and safe."

Spierings said Fonterra, a leader in New Zealand's $9-billion dairy export trade, was not facing a ban on its products in China, only restrictions on whey protein concentrate.

He said he expected the curbs would be lifted early this week, as soon as Fonterra provides Chinese regulators with a detailed explanation of what went wrong. The majority of the affected products have already been contained, he said, and the problem will be resolved within two days after all contaminated products have been recalled.

Units in Fonterra's Shareholders Fund, which offer outside investors exposure to the cooperative's farmer shareholder dividends, slumped as much as 8.7 per cent to an eight-month low before closing down 3.7 per cent at NZ$6.86. Dairy produce accounts for about a quarter of New Zealand's NZ$46 billion ($36 billion) annual export earnings, and the currency is sensitive to Fonterra's fortunes.

Dirty pipe
Fonterra is a major supplier of bulk milk powder products used in infant formula in China, but doesn't sell in China under its own brand name after Chinese dairy company Sanlu, in which it held a large stake, was found to have added melamine - often used in plastics - to bulk up formulas in 2008. Six babies died then and thousands were taken ill.

Spierings said the latest problem originated in a pipe at a factory in New Zealand that was seldom used, so normal cleaning was not sufficient to sanitise it.