Quality control

Fonterra is often trumpeted as a global New Zealand success story and it is true, when the going is good; but that success has come - and continues to come - at a considerable cost.

The state of the local environment where industrial-scale dairy farming is taking place is one of those costs and until quite recently the record of the company and far too many of its suppliers had been lamentable.

Improvements are taking place but it will be decades in some places before aquifers and waterways are restored to even reasonable quality and dairying has shown a marked reluctance over a long period of time to accept its share of the responsibility for the contamination the industry has caused.

In becoming one of the world's leading dairy firms, Fonterra has entered into many partnerships and joint ventures and with them has come a widening of potential and actual problems to do with local conditions.

In New Zealand, local governance can be and is enforced but a different situation exists elsewhere, especially where Fonterra is a minority partner.

Many of the major milk industry firms have been confronted with problems, some of their own design in pursuit of greater profits, especially where they do business in China.

Now, Fonterra has been trapped in a catastrophe from which it will be very difficult to fully recover.

Three years ago, Fonterra invested $153 million for a 43% stake in a Chinese company called Sanlu.

The joint venture manufactured a popular infant formula from locally produced milk that generally sold below the prices of competitors to mainly rural Chinese mothers.

Milk quality in China has long been poor and unreliable, with many previous scandals to do with contamination, and absent supervision of quality standards.

In August, according to Fonterra, it was informed at a Sanlu board meeting that some of the infant product had been contaminated with melamine, a chemical used by the unscrupulous to boost the apparent protein content of low quality or watered milk.

The result so far has been the deaths of at least three infants and thousands of others have developed kidney problems.

The Chinese Government has begun an industry investigation, is providing free health care for affected babies, has arrested several local officials, and a great deal of product has been recalled.

Sanlu is by no means the only offending company, although it is reported to be the worst.

Of some 109 dairy producers checked early this week, 22 had been found to have produced batches of milk contaminated with melamine.

There have been suggestions and reports in Chinese newspapers that concerns about the Sanlu product were being aired many months ago but were suppressed by Chinese authorities because of the Olympics and world-wide attention being focused on China - and the fact that Games sponsor Yili was among other major brands to have been included in the list of erring firms.

Dairy industry experts quoted in news reports have said China's industry has grown too quickly for safety administration to keep up, with no uniform standards and loopholes in legal oversight.

But part of the rationale for Fonterra to establish a joint venture in China was to improve both milk and end product quality, to raise standards generally.

So, what is more concerning from a New Zealand viewpoint is why Fonterra did not know of the problem earlier than August; after all, it has three directors on the Sanlu board.

Fonterra managers in this country only informed our Government of the problem on September 5, apparently having failed to convince regional Chinese authorities to intervene, and the Prime Minister, Helen Clark, says she then instructed her officials to tell the Beijing government.

Only after contact at that level did the Chinese officials act.

But Fonterra itself did not make the contamination problem public until more than a month after it officially knew.

Quality control where food products are concerned is simply unarguable and the damage done for the lack of it to Fonterra's good name by this tragic event suggests the company needs to have taken, and to continue to take, a great deal more direct interest in such partnerships.

It now faces possibly years of effort trying to recover sales and restore public confidence in its milk products, for not only are its joint venture products in China, but the company exports others there manufactured from fully imported New Zealand milk.

In the broader sense, New Zealand's global marketing position as "clean and green" - with all that implies for food safety - may also have been harmed since the matter has received international media attention, with Fonterra named as a Sanlu partner.

Furthermore, the Chinese disaster suggests Fonterra's "softly-softly" response to the environmental cost of dairying growth in this country has now been matched by a similar attitude in its overseas partnerships.

It is up to Fonterra to prove otherwise, and soon.


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