Fonterra denies being cowed by China

Fonterra chief executive Andrew Ferrier today angrily rejected an allegation that the world's biggest milk trader suffered from "Nuremberg syndrome" in China.

He denied that the New Zealand farmer cooperative had been captured by the local business culture to the extent public warnings that its Chinese joint venture Sanlu had been selling poisoned milk for babies were delayed for six weeks.

"This was never, for an iota, an issue for our investment in China -- this was an issue, from the very beginning, of the most effective way to get the product off the shelf," he told a press conference today.

Chinese authorities have said 6244 babies are ill after being fed milkpowder contaminated with a chemical, melamine, apparently so that diluted milk could pass tests for protein content. About 158 children are suffering from acute kidney failure and three have so far died.

Fonterra knew about the contamination on August 2, but did not disclose the information publicly until September 14, several days after the Chinese government began investigations. Since then, industry-wide testing has shown product from another 21 companies is contaminated.

Asked why Fonterra did not tell Chinese consumers earlier, Mr Ferrier repeated throughout his press conference that the giant cooperative was trying to do the right thing.

"There has been a lot of soul-searching about the most effective way to get product off the shelves," he said. "We made the call that we had to work within the Chinese system.

"Standing outside the system, we could not see where we could have an appropriate influence in getting the product off the shelf," he said.

"We encouraged Sanlu, we encouraged the authorities to go via a public recall, but they made their own judgment that the most effective way in China was through a trade recall." The trade recall removed product from stores, supermarkets and distribution centres.

To the point that while this was going on children were falling sick, Mr Ferrier said: "We had no assurances that if we had tried to work outside the system that it would have had any effect at all." If Fonterra had taken a different tack it could have been excluded from having any influence at all.

There were three Fonterra directors on the board of Sanlu, but only one of them speaks Chinese.

The Fonterra directors were told through a translator Sanlu had set up a team to test product after receiving calls about sick babies as early as March. Sanlu found no contamination over nearly six months.

"There were six different levels of testing: three different provinces and three different agencies and at each level of that testing the product was cleared," Mr Ferrier said.

"It was not until the beginning of August that melamine was found in any of those samples." Sanlu warned the local health officials in Shijiazhuang, the city where it is based, and the trade.

In hindsight, Mr Ferrier said he wished the contamination issue had been taken earlier to the Sanlu board.

Since last week, Sanlu's general manager Tian Wenhua has been fired and dismissed from the company's board of directors as a result of the scandal, the official Xinhua News Agency reported. She was also removed from a Communist Party position.