Fonterra Tainted Items Add to Woes of Consumers in China

Fonterra Cooperative Group Ltd.’s warnings of tainted ingredients in some products of the world’s largest dairy exporter is the latest blow to baby formula sellers amid Chinese consumers’ concerns about food safety.

The Auckland-based company found bacteria causing a rare illness called botulism in about 38 metric tons of whey protein concentrate it produced, Fonterra said yesterday. Baby formula makers Danone and Abbott Laboratories (ABT), which either used Fonterra ingredients or packaged their milk at the company’s production lines, said they took precautionary recalls.

The possible threat of some baby formula with the contaminated ingredients stocked on shop shelves comes as Chinese consumers are still reeling from the milk powder adulterated with melamine that killed six babies in 2008. This adds to the woes of consumers in China’s almost $16 billion infant formula market where foreign manufacturers have faced allegations of charging high prices.

“The whole industry is racked with systemic problems,” said Matthew Crabbe, head of Asia Pacific research at Mintel Group. “This is a further dent in consumer confidence.”

Fonterra said 90 percent of affected products are in warehouses and the company is working to take back the rest from retail stores in the next “24 to 48 hours,” Chief Executive Officer Theo Spierings told reporters in Beijing yesterday. “We deeply apologize to the people who have been affected by the issue,” he said.

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Theo Spierings, chief executive officer of Fonterra Cooperative Group Ltd., center, arrives for a press conference in Beijing on Aug. 5, 2013. Close

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Theo Spierings, chief executive officer of Fonterra Cooperative Group Ltd., center, arrives for a press conference in Beijing on Aug. 5, 2013.

Import Restrictions

In a commentary titled “Remembering the Fonterra lesson,” by the official People’s Daily, the publication wrote that China needs more foreign milk imports supervision and should strictly check all milk imports, regardless of the brand.

“There is a belief among some Chinese consumers that foreign brands are absolutely safe, yet, as one incident after another indicates, even well known brands may not always be the most reliable,” it wrote.

China stopped imports of whey protein and a dairy base powder from Fonterra used in infant formula, New Zealand’s Trade Minister Tim Groser said yesterday. Russia temporarily suspended purchases of all New Zealand dairy products, he said.

About 17 tons of the contaminated protein was used by customers in Australia and New Zealand to make about 2,100 tons of baby milk powder, Fonterra said yesterday. The rest was used by other customers including Coca-Cola (KO) in other products.

New Zealand Prime Minister John Key said yesterday there is no question the incident has done damage to the country and that there will be an inquiry into the incident.

Photographer: Wang Zhao/AFP/Getty Images

Danone's Dumex brand of baby formula from a batch that has been declared safe are on sale on shelves at a store in Beijing on Aug. 5, 2013. Close

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Danone's Dumex brand of baby formula from a batch that has been declared safe are on sale on shelves at a store in Beijing on Aug. 5, 2013.

There have been no reports of any illness linked to consumption of the affected goods, Fonterra said. Botulism is a serious paralytic illness, according to the U.S. Centers for Disease Control and Prevention.

Pre-emptive Recalls

Danone (BN) was informed about the contaminated Fonterra whey protein on Aug. 2 and started pre-emptive recalls of affected milk powder products in China on Aug. 4, it said in an e-mailed statement. Twelve batches of milk powder products from its Dumex unit might have been affected, the Paris-based company said.

Some of these products had already entered the market, said Danone which advised consumers who have purchased them to refrain from using it immediately.

A total of 140,000 tins of its Cow and Gate infant formula will be recalled in Hong Kong, of which about 80,000 tins were sold to retailers in the city and Macau, Lee Siu-Yuen, assistant director of the Center for Food Safety, told reporters yesterday. About 50,000 tins are still in the warehouse, she said.

Abbott Recall

Abbott, the maker of Similac Gain milk formula, said it was recalling two batches of infant milk powder in China after the products were packed using Fonterra’s production line, which was not cleaned after using the contaminated ingredients.

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New Zealand's national flag flies, right, as the Fonterra Cooperative Group Ltd. logo is displayed atop of the company's head office in Auckland. Close

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New Zealand's national flag flies, right, as the Fonterra Cooperative Group Ltd. logo is displayed atop of the company's head office in Auckland.

None of its products sold on the mainland contained the tainted whey protein, and the recall was precautionary, Pamela Harrison, the Abbott Park, Illinois-based company’s spokeswoman said today.

Fonterra’s announcement is the latest in a string of incidents plaguing China’s milk industry. The New Zealand dairy company 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. The tainted milk killed six infants after 22 companies including Sanlu sold formula made from tainted milk.

Coca-Cola, Wahaha

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.

“There is only going to be increased scrutiny on foreign milk powder brands from now on,” said James Roy, senior analyst at China Market Research Group in Shanghai. “You see a renewed push by the government to crack down on safety issues, and there is an impetus to show that these issues are not solely linked to domestic brands.”

Shanghai Tangjiu Group Co. and two units of Wahaha, the beverage-maker owned by China’s richest man Zong Qinghou, were the other companies named by the General Administration of Quality Supervision, Inspection and Quarantine as likely having imported the tainted goods.

Coca-Cola, which received the problem whey protein from Shanghai Tangjiu, said it quarantined some whey protein it received from Fonterra and will recall all affected products in China.

Wahaha, which sells products ranging from bottled water to baby formula, did not find the bacteria in self checks, it said. No food safety issues were found in the products already sold, the company said.

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.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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