Aug 07, 2013 07:17 PM

Closer Look: Fonterra Disappoints Public with Handling of Latest Dairy Crisis

A scandal over tainted milk powder – this time involving imports from New Zealand dairy giant Fonterra Cooperative Group – has again rocked China.

The discovery that Fonterra's whey protein concentrate, which is used to make baby formula and beverages, was contaminated by bacteria that can cause botulism has hurt the market's confidence in foreign dairy brands.

Fonterra is New Zealand's largest exporter of milk powder, accounting for 95 percent of the country's total such exports. I visited Fonterra in the fall of 2008, after the melamine scandal erupted in China. I found that the company had very strict food-safety standards and controls.

It hires third-party companies to test raw milk and its product tracking system is also very effective. Moreover, nearly 100 tests are performed during the whole production process.

In the face of food-safety crises, smart companies know that there is no shortcut to saving their reputations. The only solution is to release transparent information about investigations, tell the public about the problem and start recalls as soon as possible.

However, Fonterra's handling of the current crisis could have been better.

Fonterra says the problem was first detected in a March quality test that turned up slightly abnormal results. The company then carried out detailed testing. On July 31, it confirmed internally that the bacteria that causes botulism – a potentially fatal illness whose symptoms include blurred vision, muscle weakness and paralysis – was present in the whey protein concentrate.

On August 2, Fonterra told the public that bacteria were found in the product made one at of its plants in May 2012. The tainted products were sold to eight companies around the world, four of them in China.

Three days later, Fonterra's chief executive, Theo Spierings, arrived in Beijing to apologize. Spierings said the recall in China would take only days.

Basically, Fonterra has responded quickly and been honest. However, five months passed between first detecting the problem and confirming it. During that time, the company should have taken measures to prevent the tainted products from entering the market.

This episode recalls the 2008 melamine scandal in China, when it was discovered that an industrial chemical, melamine, was being added to raw milk to fake protein counts. The chemical was blamed for killing six infants and making some 300,000 ill.

Fonterra had invested 846 million yuan in Sanlu Group, which was at the center of the melamine scandal. When Fonterra learned of the contamination problem, it suggested to Sanlu that it recall all tainted products and inform the public, suggestions the Chinese company ignored.

Fonterra then reported the problem to the New Zealand government, which told the Chinese government. Fonterra, then, can be credited with pushing for the scandal to be exposed. For its troubles, it lost all of its investment when Sanlu went bankrupt.  

In comparing the two incidents, we can see the company as determined in 2008 but hesitant in 2013. This change may have something to do with the fact it is now a much more valuable company.

Although the bacteria problem is unusual – testing for the botulism-causing germ is not common in the dairy industry because it is rare – Fonterra's response has still disappointed many customers.

It should also be mentioned that the dairy industry in China is not entirely blameless because not a single importer of the tainted concentrate discovered the bacteria during their production processes. It seems that five years after the melamine scandal, little has changed in the domestic dairy industry.

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