The Canadian Press - ONLINE EDITION

New Zealand launches charm offensive to reassure Chinese milk buyers after botulism scare

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BEIJING, China - New Zealand's leaders are on a charm offensive to reassure Chinese consumers after a botulism scare threatened sales in a major market for New Zealand milk.

China's demand for imported milk soared after domestic supplies in 2008 killed six babies and sickened thousands. That fit New Zealand's ambitions as a food supplier to booming Asian economies. But the announcement by Fonterra, the world's biggest dairy exporter, of contamination in an ingredient used in baby formula threw up a potentially damaging obstacle.

New Zealand's response is being led by Prime Minister John Key, reflecting the importance of milk as a pillar of its exports and of China as the world's most promising consumer market.

The South Pacific island nation announced a Cabinet-level investigation led by two ministers. Key told reporters once it is finished, he wants to fly to China to "look down the barrel of their television cameras" and "give consumers the confidence it has been fixed."

On Thursday, Foreign Minister Murray McCully met with China's foreign minister and another Cabinet official and assured them of his government's "total and absolute commitment" to food quality.

"I believe that New Zealand's unambiguous commitment to meeting quality standards in the export of food has been appropriately underlined," said McCully at a news conference.

The response also reflects the emotional sensitivity of food supplies in China, which has suffered a string of scandals the caused sickness and deaths due to fake or shoddy food, milk and drugs.

In 2008, some Chinese milk brands were found to be tainted with the chemical melamine, which can cause kidney damage and other injuries. Some suppliers added it to fool protein tests on watered-down supplies.

Even today, imported milk from New Zealand or countries such as Australia and Germany has such a strong reputation that it commands up to three times the price of local brands in Chinese supermarkets.

New Zealand accounts for up to 80 per cent of China's imports of milk powder, much of it used in infant formula, according to Chen Lianfang, a senior dairy industry analyst at Beijing Orient Agribusiness Consultant Ltd. in Beijing.

"New Zealand milk suppliers established a brand in China founded on the promise of safety and reliability," said Li Hong, senior partner in charge of China for FleishmanHillard, a communications consultancy, in an email.

"Their job now is to recapture the premium position they once held," said Li. "In most cases, brands can be rehabilitated if the crisis is handled quickly and transparently."

McCully promised "openness and transparency" for consumers as his government investigates.

"We intend to make sure that there is good disclosure," he said.

On the strength of demand for milk, China overtook Australia as New Zealand's biggest export market for the first time ever in the first quarter of this year. Chinese imports of milk powder from New Zealand in the first half of this year rose 34 per cent over a year earlier to 371,000 tons.

That growth was jeopardized after Fonterra announced Aug. 3 that hundreds of tons of infant formula, sports drinks and other products sold in seven countries could be tainted. Russia, China, Sri Lanka and other governments blocked or limited imports of New Zealand dairy products.

Chinese media jumped on the scare. Some outlets, including People's Daily, the main Communist Party newspaper, pointed to it as proof foreign products weren't always safe.

Some Chinese consumers have noted, however, that the New Zealand contamination was accidental, while the 2008 milk scandal and other Chinese incidents have been the result of intentional misbehaviour.

Fonterra, which has annual revenue of $16 billion, said the contamination occurred as the result of dirty pipes in a milk factory in May 2012.

It said samples turned up a potential bacteria problem in March this year, but that it took until July 31 for testing to indicate the presence of the type of bacteria that could cause botulism.

McCully said his government will watch closely as Fonterra tries to rebuild Chinese consumer confidence.

"Fonterra has a job ahead of it rebuilding consumer confidence here. But I do not want to pretend that is a matter only for the company. This is something the New Zealand government will be watching very carefully as well," said McCully.

"This is an export trade that is part of our international brand," he said. "All New Zealanders take that very seriously."

In a separate incident, another New Zealand supplier said this week it found high levels of nitrate in lactoferrin powder shipped to China.

The Chinese product quality agency impounded the powder and ordered suppliers of lactoferrin, an additive used in food supplements, to submit results of quality tests.

Other governments are looking to China as a growing market for food, from Minnesota soybeans to French wine to Australian beef.

Global and Chinese dairy brands are investing heavily to expand or upgrade production.

Nestle Ltd. said last year it will spend 2.5 billion yuan ($395 million) to build a facility in Heilongjiang province in the northeast to supply fresh milk and train farm managers.

The communist Beijing government is trying to build up its own global dairy competitors by encouraging mergers among its dozens of small producers.

In infant formula, government plans call for shrinking the number of suppliers from 120 to 50 by 2018, with 10 brands accounting for 80 per cent of the market, according to the business magazine Caijing.

In June, the country's biggest domestic milk brand, Mengniu Dairy Co., offered $1.6 billion for a local infant-formula maker, Yashili International Holdings Ltd.

Despite the latest scare, though, Chinese consumers are still so wary of domestic brands that New Zealand should be able to rebuild any lost market share, said Chen of Orient Agribusiness.

"It could force some mothers to choose breast milk, but they won't turn to local brands," said Chen.


AP researcher Fu Ting in Shanghai contributed.

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