Fonterra said it would have preferred a public recall of milk powder that killed two babies in China earlier but its joint venture partner Shijiazhuang Sanlu Group Co Ltd had to abide by Chinese rules.
The New Zealand dairy giant said someone put the banned chemical melamine into raw milk supplied to Sanlu. The possibility of contamination during the production, storage and sales process has been excluded. Melamine can boost the apparent protein content in some standard tests on food.
Fonterra said it was too early to speculate about compensation for the victims of "this tremendously tragic issue".
"In this case we frankly have sabotage of a product," said chief executive Andrew Ferrier.
"Our hearts go out to the parents and the infants who were affected."
A second infant death was reported today, bringing to two the number of babies killed in an expanding scandal that drew an official product recall only after New Zealand officials blew the whistle.
The latest death is in Gansu province, the official Xinhua news agency reported.
The Sanlu board, which has three Fonterra directors, was first advised on August 2 that there was a problem with the contamination of infant formula. A trade recall was begun on that day and a public recall a week ago. The Chinese government is now recalling all Sanlu products.
The process and investigation was being handled by the Chinese Ministry of Health, Mr Ferrier said.
"We together with Sanlu have done everything that we possibly could to get the product off the shelf," Mr Ferrier said.
On a conference call he was repeatedly asked why Fonterra did not go public itself earlier and he replied that it would have been irresponsible for Sanlu not to have followed the guidelines of Chinese authorities. Fonterra has a 43 percent stake in Sanlu.
"I can look myself in the mirror and say Fonterra acted absolutely responsibly in this one. If you don't follow the rules of an individual market place then I think you are getting irresponsible.
"We as a minority shareholder had to continue to push Sanlu. Sanlu had to work with their own government to follow the procedures that they were given," he said.
The Green Party is questioning why Fonterra did not go public. Prime Minister Helen Clark said Fonterra had pushed for a full recall at the earliest possible opportunity but had been blocked by Chinese local government officials.
She said Fonterra approached the New Zealand Government with its concerns. New Zealand then sent Ambassador Tony Brown to make representations about concerns and the national Chinese government acted fast.
"We were the whistleblowers and they leapt in and ensured there was action on the ground."
Miss Clark said the first she knew about the issue was on September 5 and after a meeting on Monday September 8 officials were instructed to send Mr Brown. The New Zealand Food Safety Authority called other international partners to seek advice.
Miss Clark said the first indication the embassy in China got about the problem was August 14 but it did not have to report to head office.
She did not think the case would impact on the New Zealand brand but said Kiwi companies like Fonterra needed to be sure good processes would be followed in joint ventures.
Mr Ferrier said Sanlu was buying raw milk from people "who were putting what appears to be melamine in the milk".
Sanlu purchases raw milk from third parties. "We don't know how widespread that is at this point of time," he said.
Mr Ferrier declined to speculate on whether he or others at Fonterra should resign.
"The issue here is, yes, babies have died and we are totally focused on just managing through this process. I'm not here on a head hunting expedition."
Fonterra had "a couple of people" who worked at Sanlu.
He said "don't speculate on stuff like this" to a question as to whether the timing of the Olympics was a factor in the handling of the issue.
He said those detained in China were from third parties from further down the supply chain and were not Sanlu employees.
