Fonterra says no notice received on Chinese ban amid botulism scare

Monday 5th August 2013

Fonterra Cooperative Group, the world's biggest dairy exporter, said it hasn't received official notification that Chinese authorities have banned its products after discovering some of contamination with bacteria that can cause botulism.

China's official publication, the People's Daily, reported China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) as saying importers Hangzhou Wahaha Health Food, Hangzhou Wahaha Import & Export, Shanghai Tangjiu (Group) and Shanghai-based Dumex Baby Food have recalled products potentially containing the contaminated whey protein concentrate WPC80, and issued a consumer warning for three batches of Nutricia's Karicare-brand dairy products.

"There has been speculation about actions on the part of Chinese authorities," Fonterra said in a statement. "As far as Fonterra is aware, the New Zealand government is working with Chinese authorities to determine the scope of the reaction and no official notification has been received."

Trade Minister Tim Groser yesterday described the situation as "very serious" and said any ban on imports by Chinese authorities was "entirely appropriate." Russia suspended imports of Fonterra products, its ITAR-TASS news agency has reported.

Units in the Fonterra Shareholders' Fund, which gives outside investors exposure to Fonterra's dividend stream, fell 0.8 percent to $7.12 on Friday, extending a decline since Wednesday after the dairy exporter raised its forecast payout to farmers on dwindling global milk supply, while saying higher margins could put its dividend at risk.

On NZX's dairy futures market, 75 lots of October 2013 whole milk powder futures sold at US$4,300 per tonne, 6.3 percent below its last settlement price.

"This isn't a great time for Fonterra - they have had two earnings downgrades, prior to that had the DCD issue, and now they have got this whey contamination issue, all of those things have come together, it must be a really tough time for them," said Andrew Bascand, managing director at Harbour Asset Management.

"You would expect this to increase this uncertainty in the near term," Bascand said. "Investors are still weighing up the impact of the downgrades that occurred in the last two or three weeks, this is just another issue."

"If you want exposure in the sector at the moment, it is probably easier to turn to the other two listed companies, A2 Milk Corp and Synlait Milk," he said. None of Harbour Asset's funds hold the Fonterra units in their $1 billion-plus of equities. They do hold A2 and Synlait.

A2 shares were last at 67 cents and have gained 26 percent this year. Synlait was last at $2.71 compared to last month's IPO price of $2.20.

Fonterra said on Saturday it had found bacteria which can cause botulism in some of its dairy products, affecting eight of its wholesale customers. Dairy makes up about a quarter of New Zealand's export earnings.

The dairy company said only products using the WPC80 protein as an ingredient are affected, and that doesn't include any products sold on its GlobalDairyTrade platform or any Fonterra-branded consumer products. The latest GDT dairy auction is set to be held overnight on Tuesday night.

Yesterday, it said products made by Coca-Cola, Vitaco and Chinese drinks maker Wahaha are safe to consume because of the way they are manufactured. Its animal feed subsidiary NZAgBiz recalled a small amount of calf milk replacer sold in the North Island.

The whey protein concentrate, WPC80, is a dried product used as an ingredient in infant formula and sports drinks. Some of 38 tonnes of the product was shipped to customers in six countries in May 2012, having passed health safety tests.

In March this year, Fonterra retested material from the same batch prior to use in third party manufacturing under licence and, four months later, publicly disclosed the presence of clostridium botulinum, a "very rare" example of a common dairy bacterium.

The food safety scare is the third to have caught Fonterra since a scandal in 2008, when the adulteration of raw milk by Chinese dairy farmers with a chemical, melamine, caused deaths and serious illness for thousands of Chinese children. Fonterra owned 43 percent of SanLu, which closed down because of the disaster.

BusinessDesk.co.nz

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