Fonterra fined $900k for role in fixing prices in China, says rivals face bigger penalties

Wednesday 7th August 2013

Fonterra Cooperative Group, embroiled in a food contamination scandal, has been fined $900,000 for its role in fixing prices for infant formula in China, but says its rivals face bigger penalties.

The Auckland-based cooperative was issued an administrative fine of 4.47 million Chinese yuan after the China National Development and Reform Commission finished its probe into foreign firms' pricing on consumer dairy products, Fonterra said in a statement. The world's biggest dairy exporter will provide extra training to sales staff and review its distributer contracts as a result of the investigation.

"We access the NDRC's findings and we believe the investigation leaves us with a much clearer understanding of expectations around implementing pricing policies which is useful as we progress our future business plans," Fonterra Greater China and India president Kelvin Wickham said. "We understand that a number of companies in the dairy industry were fined, with Fonterra's fine being in the lowest range."

Fonterra has been under international scrutiny this week, particularly in China, after it said it had found a bacteria which can cause botulism in three batches of whey protein concentrate, which had affected eight of its customers.

China is the only country to have imposed some restrictions on Fonterra imports, with Russia, Singapore and Vietnam recalling the affected products and Malaysia, Thailand, Viet Nam, Singapore, Australia, Saudi Arabia, Hong Kong reviewing the situation.

Last month, Fonterra joined Abbott Laboratories, Nestle, Danone, Royal FrieslandCampina and Mead Johnson Nutrition in cutting prices since the NDRC launched its investigation.

China's official publication, the People's Daily, reported in July the NDRC had evidence infant formula prices have climbed 30 percent since 2008. That was the year Fonterra was embroiled in the melamine scandal that left several infants dead after its farmers at its Chinese partner, San-lu, added melamine to the milk to lift its protein.

Since then, Fonterra has been boosting its exposure to Asian markets and China in particular as it looks to cash in on an increasingly wealthy population with growing demand for protein.

The company has been building farm hubs in China with a view to producing one billion litres of milk by 2020.

New Zealand is the biggest supplier of infant formula to China, selling 371,000 tons to the world's second-biggest economy, in the first half of the year, according to a People's Daily report.

Units in the Fonterra Shareholder's Fund rose 1.2 percent to $7.03 today after the 2.4 percent fall in trade-weighted prices on the GlobalDairyTrade platform helped allay fears the food contamination scare is widespread.

BusinessDesk.co.nz

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