By APCO’s team in Greater China
On August 3, 2013, Fonterra announced that it found bacteria in three batches of their dairy products, which could cause botulism – a potentially fatal disease. Fonterra’s announcement led to a global recall of up to 1,000 tons of dairy and dairy-based products across seven countries, including China. To date, no one has reported illness as a result of consuming the contaminated dairy products.
Fonterra claimed that it had identified a problem with the same bacteria in its products in March this year. An intensive, four-month, testing program was carried out. The executive team pinpointed the problem on July 31. The company later reported the issue to the New Zealand Primary Sector Ministry on August 2.
This is the third baby formula crisis that Fonterra has been involved in since 2007. The others were the melamine contamination and the DCD (dicyandiamide) residue incidents. These crises have severely damaged the company’s reputation and it will take a long time for it to recover and regain consumer’s trust. In a speech on August 5, New Zealand Premier John Phillip Key raised doubts about whether Fonterra had been cautious enough in its approach to testing the contamination.
New Zealand milk powder accounts for 80 percent of China’s milk powder imports and Fonterra itself accounts for 70 percent of that market share. The incident may also cause distrust among Chinese customers on imported milk products in general.
On August 4, China banned all imports of milk powder from New Zealand following the announcement of the Fonterra milk powder incident. But on August 6, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) clarified that, so far, China has only prohibited Fonterra’s whey products and formula powder produced in its Australian factories. The agency emphasized that ending the ban on Fonterra’s products will depend on the improvements it makes to its business operations and its ability to provide a consistently clean product.
Issues with domestic infant formula, and the Chinese dairy industry itself, are not new to Chinese consumers. As a result, after the 2008 melamine crisis, imported whey protein products began to gain a larger market share due to diminished public trust in domestic brands. A major problem with the Chinese dairy industry is its long supply chain. Manufacturers do not raise their own cows and have little control over the source of raw materials. In addition to strengthening information transparency, it is necessary for the Chinese government to reform the whole milk powder industry supply chain by passing stricter supervision laws on milk sources.
Xinhua has claimed the actual quantity of contaminated dairy products is much larger than what has been announced. The evaluation of imported dairy products uses random sampling and may miss some affected products. Before Fonterra’s announcement, the AQSIQ had failed to detect the bacteria contamination in its dairy products.
Although New Zealand Trade Minister Tim Groser claimed that China’s ban on New Zealand’s milk powder is “appropriate” for food safety reasons, some Chinese media raised concerns over possible impacts on the China-New Zealand trade relationship, such as the potential expansion of China’s import bans on other New Zealand products.
In situations like this incident with Fonterra, the key to restoring trust to have a product ban lifted and mitigate greater trade effects lies in how they communicate with the public and key stakeholders to ensure that accidental product contamination is not misinterpreted as a greater issue with the company.