Fonterra Coughs Up $8.4 million Donation for China

Fonterra, the New Zealand dairy cooperative linked through its joint venture Sanlu to melamine tainted infant formula in China that has sickened in excess of 50,000 children, has announced it is making a NZ$8.4 million donation to a Chinese charity set up by Deng Xiaoping, the former Chinese leader. The charity will build and operate maternal and infant community centres.

Fonterra chief executive Andrew Ferrier interviewed in Beijing said it was staff in China who came up with the donation idea. When asked if $8.4 million was enough, he replied "That's an amount which is going to create an enormous amount of goodwill and good work."

It's an indictment of Fonterra management and ownership that the initiative for the charitable work did not come from the top of the organization exercising wise and socially-responsibly judgement but had to come from staff lower down the organization in China.

Moreover, the charitable contribution averages out to just over $150 per child sickened by the poisoned milk.

Fortunately for Fonterra, Chinese consumers do not seem to associate Fonterra with tainted milk products. A consumer survey in China of 900 people found that only 3 percent regarded New Zealand in a poorer light because of the scandal, largely because most consumers do not know of Fonterra's ownership stake in Sanlu.

Parliamentary Question Time

Parliamentary Question Time, 23 Sept 2008.

Question #11: Green Party Co-leader Jeanette Fitzsimmons asks Government Minister for Food Safety Lianne Dalziel, about product labeling on country of origin and product safety on Chinese dairy products that might be tainted with melamine, a toxin found in milk produced by San Lu, a joint venture with minority ownership by New Zealand's Fonterra.

Question #10: Opposition MP, Gerry Brownlee, National, representing Ilam in Christchurch, asks the Minister of the State Services, David Parker, why there has been a rapid expansion in government office space in Wellington, the capital.

No Use Crying Over Spilt Milk?

Fonterra may have its 43 percent share in its Chinese joint venture, San Lu, sold out from underneath it.

The China Daily is reporting that the Sanlu group may be forced into bankruptcy and be taken over by Beijing Sanyuan Food, a major Chinese dairy producer that is not implicated in the melamine-tainted milk scandal in China. Sanyuan has reportedly received a Chinese government order to consider a merger with Sanlu.

Perhaps revealing a degree of naivete about how business is really conducted in China, Andrew Ferrier, Fonterra's CEO told the Wall Street Journal, "no one has contacted our people on the board about a purchase."

This past week Fonterra has written down its book value for Sanlu from NZ$139 million to $62 million, based on an assessment that the Sanlu brand could not be resuscitated.

In addition to its initial purchase price for a stake in Sanlu of NZ$150 million in 2005, Fonterra has put a further $200 million into the joint venture.

In a period when New Zealand dairy farmers have been living on the cream of the land as international dairy sales boomed, they will surely be asking what happened to the management of their international investments.

The whole episode brings into question the naivete or innocence of New Zealand businesses operating in foreign markets where the rules of the game are markedly different from those in traditional or domestic markets.

Stoned - Fonterra on San Lu & Chinese Baby Poisoning

The facts updated:

Fonterra knew for 6 weeks that its Chinese joint-venture, San Lu, had been selling melamine-tainted milk used in infant formula before it informed the New Zealand government. Fonterra claims it was trying to work internally within China to get a public health authority response. Once informed, the New Zealand apparently acted decisively to alert the Chinese central government through diplomatic channels of the health risks to Chinese babies: more than 6244 of whom have contracted kidney stones, 158 are suffering acute kidney failure.

San Lu is alleged to have known as early as 2005 that its milk was being tainted with the toxin, according to a vice governor of Hebei province, Yang Chongyong.

Contrary to San Lu claims that Chinese dairy farmers had added the toxin to their milk, initial investigations now show 41 out of Sanlu's 372 own fresh milk supply centres mixed melamine in milk.

Beware corporate tainted "love"...