Fonterra, New Zealand's multinational dairy cooperative, is linked to China's contaminated infant formula scandal through its ownership of 43 percent of San Lu Group, China. Fonterra accounts for about a third of international trade in dairy products.
San Lu is the company responsible for selling melamine adulterated formula that has resulted in 432 babies across China becoming ill with kidney stones. Melamine, a toxin, has been used by unscrupulous suppliers in China to appear to raise the protein content in animal feed that may have entered the milk supply. The tainted formula is based on Chinese-sourced milk, and not from milk products from New Zealand or other outside sources.
According to Radio New Zealand news, Fonterra has called for a full product recall since it was advised of the contamination in August and has upgraded milk quality testing procedures. Over 8000 tonnes of infant formula have been pulled off store shelves in China. It is unknown what the delay in removing contaminated product from sale has done to expose Chinese infants to further health risks.
Radio New Zealand reports Yang Chongyong, vice governor of the northern province of Hebei, where San Lu is based, as stating that 19 people have been detained and a further 78 questioned in connection with the contamination of the formula.
This consumer health & product safetly failure underscores the high risks multinational joint ventures face where they are unable to create effective control of the global supply chain for their products. The "wild west frontier" mentality of Chinese product safety regulatory and enforcement regimes where enforcement frequently occurs in a very blunt, executory way, well after the harm has been done accentuates the need for responsible investment by multinational investors in the conduct of their business.
Chinese consumers have a right to expect to learn from Fonterra how it plans to execute more effective governance measures over its joint venture, San Lu Group, to secure the public health. As of September 14, Fonterra has not even acknowledged the product safety problems of its Chinese subsidiary on the Fonterra web site.