Fonterra reacts to China milk scandal

September 24, 2008
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, WELLINGTON, September 24 – The world\’s largest dairy exporter, New Zealand\’s Fonterra, said Wednesday it was "appalled" its Chinese joint venture failed to report complaints over tainted milk products for eight months.

The company announced it was writing down the value of its Chinese investment by 69 percent because of the crisis, which has led to four deaths and the treatment of nearly 53,000 children in China with kidney stones and other problems.

Sanlu Group, the firm first found to be selling milk products contaminated with the industrial chemical melamine, began receiving complaints about sick children as far back as last December, Chinese state television said Tuesday, citing a cabinet probe.

Fonterra, which owns 43 percent of Sanlu, reiterated Wednesday that it had not been informed of the health problems by Sanlu officials until August 2.

"That Fonterra was not informed earlier is frankly appalling," Fonterra\’s chairman Henry van der Heyden said in a statement.

He said the scale of the crisis was "truly shocking."

"Throughout this crisis, Fonterra\’s paramount concern has been for the health and safety of Chinese consumers and recalling contaminated product as quickly and effectively as possible in the Chinese environment."

Fonterra chief executive Andrew Ferrier told a press conference in Auckland Wednesday that Sanlu had been destroyed as a brand by the scandal.

"There is a situation in any partnership if one partner doesn\’t tell the truth to the other partner, then you have a critical breakdown in that relationship."

Announcing its annual results, Fonterra said it would write down the value of its investment in Sanlu by 139 million dollars (95 million US).

This reflected the cost of product recalls and Fonterra\’s anticipated loss of brand value in Sanlu, leaving the investment valued at 62 million dollars.

"I think the Sanlu brand cannot be reconstructed and that\’s why we took off a write-off of the brand value," Ferrier said.

Fonterra has been under attack from New Zealand Prime Minister Helen Clark and others for saying nothing publicly about the milk contamination for a month after learning about it in early August.

Ferrier has insisted the company tried to "do the right thing" by working within the Chinese system once Fonterra directors were alerted to the contamination.

Clark has said her government eventually "blew the whistle" and informed Chinese authorities in Beijing, bypassing the local officials.

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