Fonterra says China-bound milk powder halted in May for high nitrite

1 of 3. New Zealand Foreign Minister Murray McCully is seen behind Chinese and New Zealand flags during a group interview in Beijing August 22, 2013.

Credit: Reuters/Petar Kujundzic

By Naomi Tajitsu and Megha Rajagopalan

WELLINGTON/BEIJING | Thu Aug 22, 2013 7:15am EDT

WELLINGTON/BEIJING (Reuters) - New Zealand's Fonterra, the world's biggest dairy exporter, caught up in a contamination scandal this month, said on Thursday it was also forced to withdraw 42 tons of milk powder bound for China because of high nitrite levels.

Dairy products account for about a quarter of New Zealand's export earnings, and China is its biggest buyer of milk powder.

The high nitrite levels were first brought up by the official China Daily in late July and have dealt another blow to the company after it announced this month that it had found bacteria that could cause food poisoning in some products.

Fonterra had to apologize for a milk powder contamination scare in China after contaminated whey protein concentrate had been sold to China, Malaysia, Vietnam, Thailand and Saudi Arabia, and used in products including infant milk powder and sports drinks.

The company said on Thursday a shipment of powder had also been halted at the Chinese border in May after tests showed nitrite levels higher than allowed in China, although it had been approved for export after testing in New Zealand.

Nitrites occur naturally in water, soil and food and can be used as fertilizers and preservatives. Excessively high levels can be toxic.

Fonterra's group director of food safety and quality, Ian Palliser, said the milk powder showed nitrite levels of between 1.4 parts per million and 1.8 ppm when it was shipped from New Zealand, but showed higher levels in Chinese tests.

"The limit is 2 parts per million in China and the product tested at somewhere between 2.4 ppm and 2.8 ppm," Palliser told Radio New Zealand.

He added that China had a much lower threshold for nitrite levels than New Zealand, where levels of up to 5 ppm are considered safe for domestic consumption. The levels were "not a food safety issue whatsoever", Palliser said.

"The levels were below the New Zealand standards. This product could have been sold safely in New Zealand."

Fonterra said it had been in full control of the affected product and none of it had reached the retail supply chain.

Wellington has voiced frustrations over Fonterra's foot dragging in disclosing the contamination issue, and during a visit to China on Thursday, Foreign Minister Murray McCully sought to distance the country from Fonterra's woes.

"Fonterra has some work ahead of it in rebuilding Chinese consumer confidence," he told reporters in Beijing after meetings with State Councilor Yang Jiechi and Foreign Minister Wang Yi.

"We expect from our exporters that there should not be any mistakes ... When Fonterra disappoints customers, they also disappoint New Zealand."

Yang, in meetings with McCully, urged New Zealand to improve food safety, Chinese state media reported.

"We hope the New Zealand side will appropriately handle food safety issues, including the safety of dairy products, exported to China, and substantially ensure Chinese consumers' interests," Yang said, according to official newswire Xinhua.

Fonterra's much smaller competitor, Westland Milk Products, had export certificates revoked this week for a small quantity of the protein lactoferrin because unacceptable levels of nitrates were discovered in four consignments.

(Editing by Nick Macfie and Clarence Fernandez)

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China moves further towards milk powder sector consolidation: paper

An Abbott Laboratories sales staff carries a carton of powder milk tins out of a shop during a production recall outside Hanoi August 6, 2013.

Credit: Reuters/Kham

SHANGHAI | Fri Aug 16, 2013 2:52am EDT

SHANGHAI (Reuters) - The Chinese government is set to issue a formal proposal to prompt consolidation among domestic infant formula firms, a state-run newspaper said on Friday, naming Inner Mongolia Yili Industrial Group (600887.SS) as one of the likely beneficiaries.

The proposal is part of the government's drive to slash the number of domestic infant formula manufacturers over the next five years to 50 from about 200 now, the China Securities Journal said, citing an unnamed source.

By 2018, China expects the top 10 local companies to account for 80 percent of the domestic market, with the largest three-to-five firms targeting annual sales of over five billion yuan ($818.00 million), the report said.

The newspaper said Feihe International (ADY.BE) and Wondersun Dairy were also likely to gain from the consolidation plan, but gave no further details.

Analysts said the consolidation drive is part of a broader plan to boost consumption of local product and allay fears about food safety following a 2008 scandal, when formula tainted with melamine killed at least six infants and made thousands ill.

Last week, the country's price regulator also handed down record fines to foreign milk powder makers, including Mead Johnson, (MJN.N), Danone (DANO.PA) and New Zealand dairy giant Fonterra (FSF.NZ), for anti-trust behavior.

"The government sees a lot of room for consolidation and the real motive here is to improve the overall standards of infant milk formula products," said Sandy Chen, a Shanghai-based senior analyst for food and agribusiness at Rabobank.

Consumers in China are highly sensitive to food safety after persistent problems such as chemical-laced pork.

China's infant formula market is worth around $12.4 billion in 2012, and is set to double in size by 2017, according to data from Euromonitor.

In 2012, the ten biggest Chinese infant formula firms by market share were Zhejiang Beingmate (002570.SZ), Yili, Biostime International Holdings (1112.HK), Yashili (1230.HK), Daqing Dairy (1007.HK), Feihe International, Wissun Group, Wondersun Dairy, Synutra International (SYUT.O) and Ausnutria Dairy (1717.HK), the data showed.

($1 = 6.1125 Chinese yuan)

(Reporting by Adam Jourdan; Editing by Kazunori Takada and Miral Fahmy)

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