Botulism Halts Fonterra’s Milk-Powder Sales to China

New Zealand said China halted imports of milk powders from Fonterra Cooperative Group Ltd. after the world’s largest dairy exporter warned of a contaminated ingredient. The kiwi dollar fell to an almost one-month low.

“We understand that China has suspended imports of all whey protein and milk-based powder sourced from Fonterra, whether exported from New Zealand or Australia,” the Ministry for Primary Industries said in an e-mailed statement in Wellington yesterday. Fonterra said Aug. 3 that three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause a rare illness called botulism.

The restrictions are a blow for New Zealand because China is its biggest trading partner. Dairy products make up about a quarter of the South Pacific nation’s total overseas sales, which in turn account for about a third of economic output. Fonterra collects 89 percent of the milk produced in New Zealand.

“This could be quite a big deal for New Zealand’s prospects, certainly in the near term,” said Paul Bloxham, chief Australia and New Zealand economist at HSBC Holdings Plc in Sydney. “This is likely to have an influence in the short run on the New Zealand dollar and on markets in New Zealand.”

Photographer: Brendon O'Hagan/Bloomberg

The Fonterra Cooperative Group Ltd. in January had to assure China that traces of an agricultural chemical found in some milk posed no health risks. In 2008, locally made melamine-contaminated milk powder caused an industry-wide scandal in China, prompting the collapse of Fonterra’s partner Sanlu Group. Close

The Fonterra Cooperative Group Ltd. in January had to assure China that traces of an... Read More

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Photographer: Brendon O'Hagan/Bloomberg

The Fonterra Cooperative Group Ltd. in January had to assure China that traces of an agricultural chemical found in some milk posed no health risks. In 2008, locally made melamine-contaminated milk powder caused an industry-wide scandal in China, prompting the collapse of Fonterra’s partner Sanlu Group.

Dollar Drops

The New Zealand dollar fell to as low as 76.93 U.S. cents today, the weakest since July 8, and traded down 1.1 percent at 77.55 cents at 10:51 a.m. in Wellington.

The Fonterra Shareholders’ Fund fell as much as 8.7 percent, the most since the securities that track Fonterra’s dividends and earnings began trading last year, leading the NZX50 Index (NZSE50FG) 0.4 percent lower.

There have been no reports of any illness linked to consumption of the affected products, Fonterra said.

It’s too soon to speculate on a possible economic impact on New Zealand, Trade Minister Tim Groser said.

“We sell NZ$13.5 billion ($10.5 billion) of dairy products around the world, NZ$3.2 billion of that goes to China, which is by far our largest market,” he told Radio New Zealand. “Is all of this at risk? In some purely theoretical sense, yes.”

Coca-Cola Co. (KO) in China said it has quarantined some whey protein it received from Fonterra. Chinese regulators said companies including Hangzhou Wahaha Group and Danone’s Dumex brand were among importers of the potentially tainted ingredient. The products have been recalled, the regulator said. Danone and Wahaha couldn’t be reached outside of regular office hours.

Photographer: Brendon O'Hagan/Bloomberg

The Fonterra Cooperative Group Ltd. head office, center, stands in Auckland, New Zealand. Close

The Fonterra Cooperative Group Ltd. head office, center, stands in Auckland, New Zealand.

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Photographer: Brendon O'Hagan/Bloomberg

The Fonterra Cooperative Group Ltd. head office, center, stands in Auckland, New Zealand.

‘Wide Ban’

Russia has also suspended imports of Fonterra products, the country’s consumer rights watchdog said on its website. Fonterra Director of Communications Kerry Underhill said yesterday the company hasn’t had confirmation of that.

The whey protein batches were mixed with other ingredients to form products from baby formula to sports drinks in markets including China, Australia, Thailand, Malaysia, Vietnam and Saudi Arabia, the New Zealand ministry said.

The U.S. Centers for Disease Control and Prevention describes botulism as a serious paralytic illness.

“The entire world knows about this,” Groser told reporters yesterday, saying New Zealand should expect “a wide ban.”. “Different countries are taking different positions, and it’s absolutely appropriate that they should.”

In an earlier television interview, Groser said China had stopped all imports of New Zealand milk powders.

Coca-Cola

Coca-Cola Greater China said in a statement that 25 kilograms of Fonterra’s whey protein were used in the production of isolated batches of the company’s Minute Maid Pulpy Milky product. The company said it will recall products from these batches in China. A further 4,775 kilograms of the whey protein have been quarantined, it said.

External and internal experts confirmed its products are safe due to an ultra-high temperature manufacturing process and low acidity, which sanitizes the final product, Coca-Cola said.

In New Zealand, five batches of Nutricia Karicare follow-on formula products for babies were identified as potentially containing contaminated protein. Nutricia, part of the Danone Group, recalled two infant formula products in New Zealand.

Australia’s Department of Agriculture said the potentially contaminated ingredient was imported from New Zealand for further processing and it’s investigating whether any consignments have been shipped on from Australia.

“It’s not good,” said Stephen Toplis, head of research at Bank of New Zealand in Wellington. “It’s reputational risk more than anything, and that will be determined by what happens over the coming weeks in terms of how the company responds.”

China Meetings

Fonterra said Chief Executive Officer Theo Spierings, who is visiting China for scheduled meetings, will speak with customers there and the company will hold a press conference in Beijing today.

“Fonterra would be the first to say that they have been on the back foot on this issue,” New Zealand Minister for Economic Development Steven Joyce told reporters. “They would also tell you that some of the information that they initially relied on has changed.”

“Fonterra is doing everything possible to protect human health and our focus is on public safety,” Gary Romano, managing director of New Zealand Milk Products at Fonterra, said at a press conference in Auckland yesterday. Any financial impact would be something to assess later, he said.

Chemical Traces

Fonterra, which said none of its own branded consumer products are affected by the quality issue, drew about 14 percent of its revenue from China in the six months ended Jan. 31, according to data compiled by Bloomberg.

Fonterra in January had to assure China that traces of an agricultural chemical found in some milk posed no health risks. In 2008, locally made melamine-contaminated milk powder caused an industry-wide scandal in China, prompting the collapse of Fonterra’s partner Sanlu Group.

China is stepping up scrutiny of local and international food companies. This year it disclosed a probe into pricing of baby formula, prompting companies from Danone to Nestle SA (NESN) to cut prices. Fonterra in July said it would cut prices in China for Anmum supplements for pregnant women.

To contact Bloomberg News staff for this story: Matthew Brockett in Wellington at mbrockett1@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

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