For the first time Fonterra, through one of its Directors, has been implicated as contributing to the Sanlu poisoned milk scandal. This is explosive stuff and could be very damaging to the brand and company.
Typical stuff – Deny, deny, deny – only until the chickens come home to roost! Me thinks Fonterra may not be as lilly white as their executives tried to give the perception of during the last few months !
As I suggested a few days ago in another thread on this blog – the fonterra directors either were derelict in their fiduciary duty as directors, or they did know (at least some details) of what was going on. Now it had been earlier reported that they didnt take action for a range of reasons – so the only conclusions was that they did know.
And I suggested they should have immediately resigned and gone public – but no they didnt. They were either too stupid to do so or they caved ibnto Fonterra pressure to try and cover it up. Im not sure which was the real reason – but I am sure stupidity is part of it.
We now see that Ferier also knew what was going on.
Hopefully one day we will see real director liability and New Zealnd companies will get decent managenment (and it looks like its starting with the recent leaky building rulings that came out recently – ie: in some cases you cannot hide behind a corporate structure).
In the meantime I dont think it will matter how cheap airfares to china get, the senior management of Fonterra wont be taking trips to china – and in fact I think it maybe unwise for anyone in fonterra to take trips to china.
The EU documents (as well as those of most developed countries) specify a tolerated daily intake level of melamine in foods, presumably to account for unavoidable transfer in industrial processes. No jurisdiction permits the deliberate addition of melamine to any food whatsoever. I don’t understand how an EU technical document can be seen to have given Sanlu a license to carry out their actions, and as Ferrier says they emphasised that the acceptable level for them was zero.
I have long felt large New Zealand companies lacked transparency – Fonterra included.
Talk to farmer producers, most dont trust Fonterra with a barge pole.
This unhappy saga has a way to run yet and it is not going to be pretty.
bharmer – have you seen the document Ferrier refers to about ‘zero’ limit? I mean Id say that too if I was being paid $4mill a year and was trying to close it down – but it seems so far that the only document mentioned was the one that actually indicated that there was a limit somewhat above zero!! Why would you give over such a document and at the same time say something else.
No doubt Ferrier will have the sense to produce the Zero acceptance document at some time – because Im sure they didnt just make a verbal comment. This is a matter of life and death – as the dead pets all over N.America who were killed by exactly the same Melamine in pet food a couple of years ago indicate – by melamine in CHINESE pet food.
This is Tui billboard stuff: Melamine is really safe for you – yea right.
According to Ferrier this moring on the National Program – he indicated that there is documentary evidence that the Directors instructed San Lu that their acceptable level was zero – Yeah Right – Produce that correspondence and then they may have a few more supporters !
The longer they obsfucate on this point alone, they fall deeper into the poo in my estimation !
I suppose it comes with the territory on a blog such as this, but I wonder what basis people have to start from the presumption that Ferrier is lying. I don’t know for sure that he isn’t lying either, but some don’t seem to want to even consider the possibility that he might be telling the truth.
It’s an odd thing in this particular community, that we seem to want to believe that a successful businessman at the top of the world’s biggest international trader in dairy products should be totally devoid of business ethics. Given how much the ousted government was criticised here for not being business friendly, I am mystified by the assumption that, because he is big business, he must be lying.
I call it a bullshit excuse by the Chinese manager.
Before the scandal broke in Europe the EU had a safe standard of up to 30mg/kg.
The Fonterra director produced to the Chinese manager an EU document saying 20mg/kg
The Sanlu factories produced milk with over 2500mg/kg
Fonterra gave Sanlu a document showing that the maximum permissible level of melamine in Europe was 30mg/kg, Sanlu added about 1000 times this amount. How can it be claimed that Fonterra was responsible for adding the melamine?
Hopefully they’ll get it right on appeal and execute the b****.
Bharmer – You only have to look at the ethical (or lack of it) behaviour of some of the senior individuals in larger corporations in recent times.
Is it little wonder that we hold such opinions.
In this case, Ferrier and the board can change the attitude of those of us with such opinion by simply releasing copy of the documentary evidence ! In one foul shot we would have no leg to stand on, and real transperancy would be seen to be done
This is grasping at straws by a woman who has just been sentenced to life imprisonment in China. However, Fonterra needs to be far more pro-active in regaining it’s good name. Sanlu has been trading on the good name of Fonterra. From a PR viewpoint, far more needs to be done.
Whowee …. methinks that if there is ANY level of ambiguity in the actions of the Fonterra members of the Sunlu Board then the financial crisis facing little old New Zealand just got a hell of a lot worse.
Tian Wenhua is clearly trying to get the buck passed to Fonterra to save her own arse from Jail. It is absurd to suggest supplying her with a document about acceptable levels of melamine in baby formula in the EU was an instruction or suggestion to doctor up San-Lu’s baby formula!
I did wonder how it would take either the Chinese directors or the Chinese authorities to start playing the “blame the foreign devils” game especially when the pressure starts to come on for compensation. Watch out Fonterra your about to be hit by demands for compo. This whole nasty affair is a long way from finished. Its awful what happened to those thousands of Chinese infants but they’ve only got their own corrupt system to blame. Passing the buck to the foreign devils won’t prevent something like this happening again.
P.S What’s with all these people posting here who are so ready to believe the worst of Fonterra? I hope this ignorant attitude isn’t going to be repeated by the NZ media….
Early in this scandal, some insightful journalist wrote an article about how the result of this could be the Chinese Government taking control of Fonterra.
It seems even more likely now. In the normal course 6 dead babies does not mean a lot in China but now there is a smoking gun to Fonterra China will be after huge damages that Fonterra may not be able to pay.
I understand China has already seized the Sanlu plant and given it to Fonterra’s Chinese (Govt) owned competitor.
What’s going on is part of a process that was well described by our media during the trial.
It was pointed out that the manger was a Party member, she pled guilty early on and could expect a life sentence. It was then believed she would be quietly restored to liberty some time later after various underlings were executed and the public satisfied that justice had been seen to be done.
So now the manager is appealing, and she’s using a tiny and unimportant fact to help her case. If there’s no public outcry it’ll help to have her manipulated back to freedom in due course.
I repeat, this was expected *before* the sentencing by China observers who know how things work in the Party system.
Now come on you fonterra backsliders – face facts.
It is (and was) well established that melamine is a serious poison in food – and the N.American pet deaths was only a couple of years ago and had been well published and that product was made in china.
Now – as a director you suddenly find out that the company you are director of has melamine in the powder. You should be familiar with the fact that there is almost no natural way it can get into the milk. Being in the food addative business (most milk powder is used as an addative to food – including petfood) you will be aware of the pet deaths in N.America due to Melamine.
Alarm bells should be ringing very loudly by now. As a respnsible director one would be attempting to find out HOW MUCH was in the milk powder his company was selling. If you didnt you would be negligent.
Whatever else you would be doing , you WOULDNT be handing over documents saying that there was an acceptable level IF you really believed that the only acceptable level was zero.
And it wouldnt take 6 months for the CEO to come out and say that yes we knew about it and we really, really sauid that the only level acceptable was zero.
They sould have been up front from day 1 – this is why there is such scepticism about the ethics displayed by these so called managers.
Here here Barry – Managers ? My observations support the theory that these so called managers are nothing but selfish a**hol*s – Accountability and liability are words they believe should only be applied to everyone else.
First scandal to hit the country since the election albeit commercial as opposed to political.
There are semantics but the fact that they were in dialogue with Sanlu and now claim they said zero level was only what was tolerable kind of means they either knew what was happening/could have gotten suspicious/are trying to cover their tracks to avoid bad PR else they would have fessed up to this earlier.
It is interesting that Fonterra didn’t fess up to it earlier (i.e. explain that it had discussed melanine as an issue with Sanlu) and it took madam Wenhua to raise this…
I think you all need to read the article that DPF linked to and read a bit more of what Ferrier has said.
The document was one of many, gathered and passed to the Chairwoman of Sanlu in light of the revelations of melamine poisoning because that is what one does. If there is a discovery of such a chemical, research is instant – particularly if you don’t know everything about that chemical or its implications to human health.
“The context was when this whole thing broke there was an enormous amount of work going on to find out what melamine was and there was research all over the world about its contaminants, its danger,” Mr Ferrier said. “There was information pulled up from Europe, from the US, everywhere.”
That is a natural reaction and a bloody good one – to gather as much info from around the world as possible to discern the situation.
Furthermore – the document that former (and convicted – so we can safely assume that she has a strong motive to disperse the blame onto others) Sanlu chairwoman Tian Wenhua made public in court was only one of many others. But she probably used this one because it stated that there was an “acceptable level of melamine” as permitted by the EU and therefore looks like Fonterra was trying to gather a case for the melamine contamination being of an acceptable level.
However, as has been stated above, the contamination was 2500mgs per kilo of milk – so claiming that 20mg is acceptable is pretty much completely blown out of the water. There is no way that it could be ascertained from the document that Fonterra was trying to gather a case for a low-level contamination when there was considerable contamination that was beyond safety levels. It just wouldn’t have held up in court – even a Chinese court.
Furthermore, you would not gather a case for the melamine contamination being of an acceptable level if you intended to blow the cover of the scandal and let officials know. Which is what Fonterra did. You can argue that Fonterra should have blown the whistle earlier for sure, but as the Feds said – you cannot escape the fact that Fonterra were the whistle-blowers.
So all you above you love a good witch-hunt – please look at the facts before gathering your torches and pitchforks.
As I said earlier in this thread, SanLu is a high tech dairy company in its own right. The notion that its own chemists and food technologists were unaware of Material Safety Data Sheets (MSDS) or of permissible limits in the various jurisdictions until the kindly Westerner from Fonterra provided them is just not credible. Permissible limits of toxins are not a license to add more up to the limit. That was a greed motivated decision taken at SanLu.
Am surprised it took so long to blame somebody else other than the management of San Lu – as Fonterra is a ‘foreigner” in Chinese eyes lets blame them. Remember it was Olympic Games time – that is important in the whole sad event.
Having recently been to China this does not surprise me. The corrupt “governence” at all levels is endemic, with everybody and anybody “passing silver” to anybody else, and they all take it if they can. What is blame???
Having read the report it appears to be a typical slime beat-up using an apples v oranges type argument in the the Fontera director informed the lady of the European standard, a sensible thing to do given that melamine apparently migrates from packaging to food products, while advising (or not, it doesn’t really matter) that a zero melamine level was mandatory.
Having noted that to ensure NZ’s reputation as a food exporter every Fontera director and manager should be immediately exported to China to stand trial, the company should be seized and it’s assets sold with the proceeds being used to restore the South Island rivers to their former greatness and to rectify the serious damage dairy farming has done to the tourist based industries of the South Island.
So a Director at Fonterra passed on information including a single document showing what the maximum level of melamine contamination in the EU was, and somehow this is supposed to show that the Director implied that the Chinese company SHOULD be adding melamine to the milk?
Question to those above conducting a bizarre witchhunt: are you fucking retarded?
Andrew Ferrier has just learnt what happens when you dont follow the principles of good corporate governance namely transperancey and disclosure.
If you dont front up and fess up and make sure you tell the truth the whole truth and nothing but the truth you can be sure the MSM and blog sites like thsi will fill in the gaps for you and either get it right or get it wrong.
Sadly corporate NZ has yet to learn good corporate governance and stumbles and mumbles its way thru disaster after disaster aided and abetted by the paid lairs of commerce otherwise known as the PR industry
Tian asking for info on Melamine contamination levels – probably apropo the EU would indicate to a minority shareholder director that the reason for the request was in connection with Malamine contamination from packaging and I have seen no reports that the minority shareholders directors were ever told Melamine was actually being added to the product. Also if Tian is relying on the spec sheet what did she do to ensure that limit was actually attained – and at 1000 times more it should not have been to difficult to determine the product did not meet that standard and should have been destroyed and the source of conatmination eliminated.This has the appearance of trying to implicate others to reduce her own culpability but we need to await more evidence especially on who was responsible for purchasing the Melamine and adding it.
Hoolian – thousands of pets died in N America in 2007 from melamine poisoning. Much of the worlds milk powder goes into all sorts of processed ‘foods’ as fillers and binders etc and they especially used in petfoods. There is no way that someone who was in the milk powder business could not know that melamine was a serious problem – which either means the fonterra people were stupid and didnt know anything about their business or they are lying about what went on.
Yes of course one would search for information on various levels, but to suggest that you really think the level should be zero and at the same time hand over ‘safe limit’ documents is disingenuous.
Ruth – being a minority shareholder means nothing. The three directors for fonterra have a responsibility and the level of shareholding means nothing for the directors situation. It is no excuse that “we are monority shareholders” for the damage this thing has – and will continue to do. I read that already NZ milk powder is fetching someting like 30% less than Europe milk powder . Its certainly not quality that is the cause of that difference – it could be the side effects of being involved in a company selling killer milk powder. The directors had a responsibility to the shareholders (fonterra and the fonterra shareholders) to protect their interests. Pretending not to know, being ignorant, etc will do terrible harm to the dairy farmers. The best action is always to come right out a clean it up. It would have been all over now if they done that. as it is we are now seeing the bits and pieces dribble out six months later – and its only just starting. what a mess.
Kimble – But fonetrra are trying to tell us that they said ZERO was the limit – then why are they making an issue of the ‘more than zero’ paper?
Freethinker – now thats a long bow. Melamine contamination from packaging. It must be really bad packaging to have melamine contamination. Its not allowed in food compliant packaging !!
If the pet killing episode hadnt occured then it might be reasonable to see some confussion about what they were finding at the time – but it was big news in 2007 and they should have known – if they were diligent in the job as directors.
Hi, I work in the Dairy Industry not for Fonterra (thank god). Raw Milk arrives typically with the composition of 60%fat to 40% protein. With the addition of Malamine which is basicially 100% protein, the plant operators and managers would have instantly seen a rapid increase in production of protein base products (WMP, SMP) and the decline in none fat based by products (Butter, AMF etc). It is absolutely incompetent to have not recognised what was going on. Every plant woud have the same FOSS systems. Fonterra just look foolish and are treating the public with contempt. Internally, Fontera should have known.
It is interesting that prominent Ethics facilitator – Dr. Evan of Otago University was asked to leave as an advisor to Fonterra in 2004.
The simple lessons from this are
- Don’t be a minority shareholder in China (Fonterra should have recognised the charnage of DB, AFFCO and Danone).
- Be honest and up front
- Empower your employees to be honest and upfront.
The purpose of the Malamine is to artifically inflate the apparent protien levels of the milk, thus allowing the milk to be diluted. There will have been a substantial discrepency between the amount of milk product being sold and the raw materials. Fonterra should have realised the profits from Sanlu were too high.
Does this make them woefully incompetent or criminal – or will they front up and provide a another plausible explaination?
Pretending not to know, being ignorant, etc will do terrible harm to the dairy farmers. The best action is always to come right out a clean it up. It would have been all over now if they done that. as it is we are now seeing the bits and pieces dribble out six months later – and its only just starting. what a mess.
A mess it is – mainly due to the media beat-up.
They did come out straight away — as soon as Fonterra found out they approached the Chinese authorities who didn’t want to know because it would upset the Olympics. After that they approached the NZ Govt who approached the Chinese authorities, the first baby died and the rest is history.
Again, how on earth do you make out a case that its Fonterra’s fault from that?
It may be a long bow – I was trying to reason why the EU would set a level as melamine is not a naturally occuring product it can only be something that is added and I doubt the EU thought adding Melamine to food was acceptable which left the packaging.
I agree that minority shareholding directors still have a responsibility but they also have to have knowledge of the event and them authority to remedy and until that is demonstrated we should consider them innocent unless you want to apply that having responsibility for something means you are responsible for whatever occurs, in which case you will be pushing for Politicians and Public service managers being prosecuted for the actions of those they have responsibility for – and I don’t expect you to go there.
Barry: but to suggest that you really think the level should be zero and at the same time hand over ’safe limit’ documents is disingenuous
Not exactly. The documents they handed over were pertaining to the EU specification for the recommended maximum acceptable contamination of melamine for adults. There is no recommended “safe” maximum for infants. It would be extremely difficult to get melamine levels to zero due to leaching of melamine from the plastic packaging. Currently this is thought to produce contamination at the level of 2.5mg/kg in most milk products. This is a far cry from the 2500mg in SanLu’s milk.
The above information is not difficult to find. Tian would have had easy access to it. For her to claim that the Fonterra documentation mislead her is absurd.
This current claim of Tian’s is obviously a Chinese Poliburo ploy to defuse the obvious anger at her “light” sentence. Sow a little uncertainty into the mix and implicate the foreigners. I don’t think there is any thought of trying to gain compensation from Fonterra, this is just a political ploy.
“It was repeatedly made clear in phone calls to the Chinese company that sold milk formula fatally contaminated with melamine that the chemical should not be used, Fonterra’s chief executive said today.”
“There was “phone call after phone call after phone call” on the subject, he said.”
This morning it was “documentation”. First time Ive seen phone calls referred to as documents.
“Mr Ferrier said that at the time Fonterra was “trying to find out what melamine was, what can it do to people’s health”.”
Now that’s almost certainly a false statement. There is no way people within Fonterra did not know the dangers of melamine. If they are trying to paint themselves as ignoramuses then it might be successful, but really that sort of story is almost criminal in its stupidity and deceit. .
You are beating up over nothing. Ferrier said clearly that Fonterra had made many phone calls. The contents of the phone calls were documented. I do this all the time as a doctor. If I take a phone call, I write down exactly what was said, date and time it and sign it. That way I can prove exactly what advice I gave if things go pear-shaped. I’m sure this is SOP in any business as well.
Barry- Ferrier is not “changing his story almost hourly” – I have read the Herald report I assume your referring to and in no way does Ferrier call the phone calls made to Sanlu ‘documentation’. The documentation referred to by Tian Wenhua was and remains information about EU food standards in relation to melamine not phone calls.
You are either confused because you didn’t read the full article or didn’t understand what you read or you are deliberately trying to smear Ferrier and/or Fonterra on this blog for your own unknown reasons.
The decision to keep selling the melamine contaminated protect was made by Sanlu management without referring the decision to the board of Sanlu and Fonterra. The contaminated raw milk itself was purchased by SanLu from third parties in China before being processed for sale.
Prior to this scandal breaking I, like most of the public had never even heard of melamine. I am not an industrial chemist or toxicologist. As far as I know I don’t think any of the Fonterra board are either. They are businesses people not scientists. MBA’s etc not BS.c’s. Probably something they need to look at in future as should many food and beverage companies here and overseas.
Sanlu had been operating in Asia for 50 years. It had an 18% share of the China market and the company was the official supplier of milk powder for the Shenzhou 7 astronauts. The Fonterra board therefore assumed they could trust them. They were wrong. That was their only real mistake- naivety. If being naïve is a hanging offence Barry then the whole world should be swinging from the gallows.
“Mr Ferrier said that message was communicated in phone calls of which minutes were taken.
There was “phone call after phone call after phone call” on the subject, he said.
Asked if he would supply those (ie: the notes of the phone calls – barry) to the media, Mr Ferrier said he would not because of a possible appeal by Tian against her conviction for producing and selling false or substandard products.”
looks pretty clear to me Dick.
Ferrier also said on TV tonite that the fonterra people had advised Sanlu of the acceptable levels of melamine – of course Fonetrra directors were involved in decisions to keep selling. (this ignores the comment that they reckon they said the level acceptable was zero!!)
Sorry Dick – evrytime Fonterra say something , its different to what theyd previously said.
Also – if you google melamine+pet food you get 222000 hits. Not exactly a rare thing. Look under Melamine and you get over 7 mill – most about poisoning.
And in the food industry the pet food scandal was world wide news.
“Asked if he would supply those (ie: the notes of the phone calls – barry) to the media, Mr Ferrier said he would not because of a possible appeal by Tian against her conviction for producing and selling false or substandard products.
looks pretty clear to me Dick.”
You are a fcking idiot, barry. Not supplying information that will be used in a court case is standard behaviour.
Richard Hurst has handed your ass to you and all you have to respond with is that pathetic nonsense?
Some of you people are bloody unbelievable. I believe there where some 14 different companies involved in this melamine scandal. So are you saying Fonterra went to each company telling them how much melamine to use or not to use.For fucks sake get a grip or better still get a life.
# dad4justice (4685) Vote: Add rating 2 Subtract rating 5 Says:
January 28th, 2009 at 4:48 pm
“Mr Fonterra is in the plastic business? Go pull another tit Mr Ferrier. Oh well bullshit is the norm in business. You need a mortgage to buy a block of cheese these days.”
Actually, yes it is in the plastics business. There are a number of milk fractions that are used to make certain plastics and even textiles. It’s not a big part of their business but it was sure as hell there when I worked for the Dairy Board (Fonterra’s predecessor). Another unlikley derivative was certain coatings on the rear of CRT screens, also made from milk. I suppose that’s a diminishing business now, but in my day there were almost sixty distinct products made from milk. Not all of them were for human consumption.
You are quite right bharmer – fonterra make caesin – it competes with melamine in the thermoset plastics market – you know buttons and ash trays and various trays and things like disposable cutlery and so on.
Oh shit !!! – maybe the fonterra guys might have known more about melamine than they are making out……………….
These guys COMPETE with melamine in the thermoset market and here is Ferrier saying ….(as reported in the Herald)…
“Mr Ferrier said that at the time Fonterra was “trying to find out what melamine was, what can it do to people’s health”
Bullshit – they compete with it when selling caesin. They knew exactly what it was and is.!!
It is that fonterra had two board members who couldn’t speak Chinese over looking a $200 million dollar investment in China. Now I suppose they do have a reputation for being open and honest but really I would expect a little bit more oversight.
Jesus, Barry your the living embodiment of leading a horse to water but you can’t make it drink.
1. The document Tian Wenhua referred to was about EU food standards not “phone calls” as you absurdly claimed. I assume you no longer argue this.
2.Ferrier made calls to SanLu…..so how is this different from before? Has he ever claimed he’s never contacted SanLu about this? No. In fact the opposite- He’s made clear Fonterra insisted to SanLu that melamine was unacceptable.
3. Despite Fonterra’s best efforts SanLu management went ahead and sold the contaminated protect anyway without referring to the board.
5. As pointed out by Kimble: Tian Wenhua is currently appealing her conviction- Not supplying information that will be used in a court case is standard behavior. Ferrier has said if the Chinese authorities want the phone records they can have them.
4. Who was it again that got this story to the Chinese authorities in the first place? Tian Wenhua and the directors of SanLu? No. Perhaps the managers in charge of production at SanLu? No. Maybe the suppliers of the original raw contaminated milk in China? No. Was it you Barry? No. Was it me? No.
It was Fonterra.
Funny that. You’d think if you were trying to cover something up its the last thing you would do.
5. Lastly lets go back to the original point: Do you honestly think that giving someone information about EU food standards on melamine is an instruction or suggestion to sell contaminated milk product? Really? If so Barry then a hell of a lot of toxicologists, industrial chemists and govt officials in food safety depts. who have ever provided advise or information to food manufacturers are running the risk of criminal charges if a food product gets contaminated!
P.S: Isn’t it lucky your posting under a false name on a blog- saves trying to prove statements you make about private individuals and companies without facing hundreds of thousands in defamation doesn’t it?
So – if Reid is right – the Fonterra rep on the sanlu board was their previous head of their R&D outfit. Thats where they do things like check the properties of caesin and melamine to see which has the best (or worst) properties when making things like sandwich trays and cutlery handles.
And Im expected to believe that they didnt know about melamine – as Mr Clinton once famously said ‘Give me a break’.
One thing Fonterra appears to need to do immediately is change its PR people. From day one the message management they’ve displayed over this is very poor indeed. For a company with the resources it has, this is not acceptable.
I understand they use a private company. Get another. Results to date indicate the current advisors don’t understand crisis management at all.
The possibility the Chinese (govt, media and private citizens) might blame the westerners for this incident was entirely predictable – given the sort of govt they have and the sort of society mores that exist in China. The way it’s playing out however is making Fonterra look like its reacting. At no point has Fonterra every demonstrated that it’s in control and leading the events rather than being lead by them.
Successfully navigating through this situation has more to do with managing the company’s reputational image rather than managing the reality of the facts. It requires a highly skilled and specialised PR response of which so far, we have seen nothing.
The international reputation of the most critical player in the NZ economy is not being awfully well defended at the moment and it may well be time for some govt diplomacy to occur. This is one of those times where it’s very lucky indeed that someone had the foresight to establish good relations with China. It’s one and possibly one of the only things, I commend Helen for.
Look. This happened because the Chinese in general have shoddy safety records and a very poor attitude to what’s right and wrong. Some bastards tried to make a buck by getting rid of poisons in food products and they didn’t care where it went.
Meanwhile, the Olympics were coming up soon and the Chinese govt would not accept anything that would taint the glow.
Fonterra is an extremely ethical operation in every way and they were operating in a market where those standards weren’t the same as those they have in other markets, not just in NZ but elsewhere.
It’s ridiculous to suggest that any Fonterra employer would not have blown the whistle or would have turned a blind eye to any of this, had they had the slightest inkling of what was going on. This was a Chinese affair, conceived of, covered up by and executed by, the Chinese. Period.
I would not be surprised at all if the Chinese govt has said to Fonterra, words to the effect: Look, we know you weren’t involved, but if you STFU and let us play this our way, then we’ll let you back into China at some point in time when all of this dies down. If you make any noises at all, then we’ll shut you out, forever.
I would not be surprised at all if that is the case, but I emphasize I am NOT saying it IS the case for I do not know.
It’s a horrendous situation that we, as in NZ, are in. This is terrible in every way, for our reputation and for our export prospects not only in Dairy but in all food products. Only foot and mouth would be worse but this is getting up there as each day passes.
Reid – you might be right about a long term deal with the chinese but there are just two small problems (well at least 2)
1. You cant trust the buggers to keep the deal. The chinese will ALWAYS act in their own interests, and if that means going back on a deal, then so be it.
2. The damage to fonterra and its reputation and the cost of all this. It doesnt matter if there is a long term deal, there will be a terrible price to pay even if they (chinese) do come to the party.
There is a big financial cost which hasnt even started yet, and the reputation of management as a bunch of bumbling fools wont go away in a big hurry – and believe you me the europeans and the yanks will be reminding all the customers of this for years to come. All they will ever need to say is “What – youre getting it from fonterra? – have you checked it for melamine? – or anything else? – where was it made – china or russia?”
That takes the price of NZ goods below the others.
I cant see any other pathway than that they should have come clean as soon as they knew. Then their reputation is clean – in fact better than the others, and the cost would have been much less.
The moral of the story is that free trade with China WAS A BAD IDEA. Human rights/animal welfare/ethics/morals……… don’t exist over there. Why does NZ have to be the guinea pig for a trade deal? I won’t eat anything from China. But it’s getting harder to know where food is from… Doh
re: point 1: the Chinese will do deals with players who offer them something. Fonterra offers superior know-how and western global cache. The Chinese want and need that and it can be a win-win and both players know that.
re: point 2: Fonterra will work through this, it’s got cashflow, that’s critical. Even in a full-blown depression, people still need to eat, and milk-powder’s a staple. What do you mean “a terrible price to pay?”
From a consumer point of view they won’t recall this for more than 5 mins, and Fonterra’s brands aren’t associated with Fonterra. It’s the regulatory authorities and the dairy farmers in the countries they want to operate in, who will remember. That will cause problems unless it’s managed pro-actively and so far from the poor job they’ve done with their consumer response (which is what we’re reading in the papers), you’d wonder if they’ve started looking at those players.
If they had gone public without govt approval then the Chinese govt would have been enraged. You need to understand this. In China, you cannot go against the govt. The Olympics and this scandal was an unfortunate confluence that acted to make this much worse than it needed to be. The responsibility can and should be sheeted home to the Chinese govt, but don’t expect Fonterra to do that, because their hands are tied. It’s up to you to connect those dots.
The moral of the story is that free trade with China WAS A BAD IDEA. Human rights/animal welfare/ethics/morals……… don’t exist over there. Why does NZ have to be the guinea pig for a trade deal?
Melanie, why is free trade with the soon to be largest economy in the world, a BAD IDEA?
I agree that the Western concept of human rights and animal welfare doesn’t exist over there, but so what? Do we have the monopoly on all that is good, true and just in the world? As for ethics and morals, I suspect there’d be more than a few NZ’ers who’d do just as nasty things as those criminals who directly placed the melamine into the milk powder. Why, look at our very own P cooks. What havoc do those guys wreck? Not everyone in China is like that, they’re just like us. Good, Great, Bad, Wicked and every shade in between.
Why does NZ have to be a guinea pig for a trade deal? Well, not sure that you’re noticed, there’s a little thing called globalisation been sweeping the world. How about we don’t trade with anyone we don’t like merely because they’re not like us in every respect. Let’s see, that would be just about every country in the world, at some point in time, wouldn’t it? Not sure that would be an overall good thing, Melanie.
OECD, You are absolutely right. It is the sort of headline NZ does not need.
I’m disappointed David chose what is actually a false headline as well as one which is damaging and has incited so much ridiculous and misinformed comment. Fonterra’s director is NOT ‘implicated’ in the scandal as David suggests. The Chinese government and their Sanlu director are doing their best to implicate him which is and entirely different thing. Odf course, they will not succeed unless there is more foolishness such as this blog posting in the mainstream media. It is a fair bet that many overseas interests with whom we compete will read this blog and use it to our disadvantage.
“It is that fonterra had two board members who couldn’t speak Chinese over looking a $200 million dollar investment in China.” – nailed it Kiki.
I believe this debacle illustrates just how greedy and naive NZ senior management can be in regard to doing business with China. It matches my own experience with NZ companies with China business relationships. As long as the money’s good, there’s no chicanery, denial, fudging, smooth talk, backtracking and evasion too extreme to bring into play – but just make sure it’s all operationally project managed at arms length from the board room table since plausible deniability is essential.
What price Fonterra’s brand of Dumb Capitalism when the full invoice is finally presented?
There’s this swiss or Swedish outfit that makes cardboard boxes for things like milk. Tetrapack. They went into china thinking “well we’ve got this lot screwed. Our technology is just sooo complex and soooo costly and we have soooo many patents, etc, etc that they’ll never be able to catch us up.”
Well they built their factory and even before they started making their liquid boxes they noticed a very similar building going up a few miles away – and sure enough it turned out to be a plant to make the same sort of product.
They had copied the plant.!!
The Chinese don’t really need fonterra and whatever technology they might have – sure if they turn up and abandon all their milk powder processing technology well that’s a great break, but actually fonterra don’t have any special technology. The fonterra plants are all sourced on the open market. There are really no special secrets to making cheddar or milk powder or butter. And although we think fonterra is big, the USA produce much more dairy products than NZ does and there is a much wider variety of production techniques used over there..
Fonterra’s main strategic strength is cheap grass. Some would also argue that its economy of scale is a strength – but I’m not so sure that the economy of scale argument is anything more than a myth. And with dairy farmers relying more and more on expensive water and pumping grain into their herds they are slowly loosing the advantage of cheap grass. Just to show how things have changed here – the new $5.10 is the third highest payout in recent years (at least the last ten) yet we hear stories of doom. Trouble is the industry is moving from cheap grass to costly grains and imported palm kernel etc. Wait until the cost of water in the S.I. is put at its true value. Truth is fonterra is not the bastion of great commercial strength that it appears to be.
Now – regarding reputation. Remember the Austrian anti freeze wine or the jumping ausy beef (when they labelled kangaroo as beef). Well the Austrians are over the glycol thing now, but it changed their industry such that austrain wine is now mostly hidden in boxed wine rather than in bottles labelled ‘product of austria’. In Ausy the beef industry has also changed forever. The farmers pulled back production as prices dropped and sales became harder after the kangaroo episode and the industry become more volatile – especially in queensland. One result is that the season has shortened so much that ausy workers don’t see the industry as a permanent job – so the meat processors fly in plant labourers from south America (where beef is seriously big and there are plenty skilled workers) for the sort season. Whats actually happened is that the kangaroo episode caused a structural changed in that beef production really slowed in queensland and it moved to southern states. Nothing has replaced that industry in the north, and in the south the beef have pushed sheep or grain (or something else) off the land. Overall the result of that mess has been a reduction in agricultural production in ausy. Ok theyre over it now (although you still hear references to the need to properly tie down shipments of ausy beef!) but its put a permanent cost on the economy and if it weren’t for things like coal, queensland would be a disaster area..
Now fonterra aren’t in the same situation as the two examples above – yet – but their awful, awful handling of the situation means its fast becoming one. And that’s were the long term cost comes in. Sure it may benefit open country and westland and tatua and we might even see more startups of new processors/marketers as a result, but the relative size of fonterra means that the others will have to do real well to make up the difference.
Someone posted the following on Bernard Hickey’s blog on Stuff.co.nz
The following was reported by a Singapore newspaper on 5 Jan 2009:
“On 13/8/2008, Sanlu decided after another meeting that products with less than 10mg/kg of melamine could still be sold as usual. Products with more than 10mg/kg should be temporarily suspended for sale. Products with around 20mg/kg of melamine should be gathered to replace products with even more melamine. All products with melamine should then be gradually removed from the market.
After the above plan was disclosed to the public, competitors were shocked. Before this scandal, Sanlu had been known to have high quality standards. However, the above plan proved that Sanlu opted for short-term profits instead.
It should be noted that the product replacement plan was based on the EU standards supplied by Sanlu’s New Zealand shareholder Fonterra.
Although Fonterra had initially disapproved the plan, after further discussions, Fonterra did not insist on disclosing the problem to the public. Tian Wenhua disclosed to the police during investigation that both Sanlu and Fonterra agreed on the reason to be used for the product replacement plan. Tian Wenhua believed that as Fonterra was involved in the planning of product replacement, they should also bear certain responsibility.”
I wonder why no one from Fonterra attended the trial…
If that’s true, I wonder how come it took so long for our MSM to report when it was reported in Singapore on 5 Jan 09…
kiki (160) Vote: 1 0 Says:
January 28th, 2009 at 6:26 pm
Naive or stupid.
$200-$300 million gone and the assets conveniently handed over the buddies of the Chinese government as well as technology and know how.
Not quite wealth transfer that capitalism prefers but more effective.
From a NZ perspective this is probably correct, but remember other non chinese operators like Nestle are involved with other chinese milk companies with similar problems so whilst the short term issue is non chinese the long term one is china’s. The developed world knows of the problem and misinformation and cover up will damage China’s reputation for far longer than it will Fonterra’s or nestles who both have largley clean histories and the trust that goes with that. The Chinese if they mishandle and cover up will find it is not only milk products and confectionery they people mistrust but possibly anything made in China if similar issues arise elsewere. Bear in mind also that in an economic downturn western management may close factories outside the west not just on economic grounds but on the grounds that their customers may distrust the product if the possible source of the product is from an unreliable source and therefore unsaleable against a locally but more expensive product that is trusted and thus only price sensitive.