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On March 10th 2015, the New Zealand Police and the Ministry for Primary Industries held a joint press conference to announce that Fonterra Co-operative Group Ltd and the Federated Farmers advocacy organisation received letters in November 2014 threatening to contaminate infant formula and other products if New Zealand did not stop using the pesticide 1080 by the end of March 2015. 1080, a pest control chemical compound commonly used by the Department of Conservation to control possum and rodent populations, represents a contentious issue in New Zealand, with the use often supported by conservationists and livestock farmers, but typically opposed by residents living in 1080 aerial-drop zones.
The 1080 threat brought back memories of the botulism scare in 2013, in which whey protein from a Fonterra plant was thought to be contaminated with botulism-causing bacteria. While an eventual investigation and testing found that such bacteria were not present, both Fonterra and New Zealand as a whole experienced a massive backlash from consumers both in Australasia and abroad. In New Zealand, the potentially contaminated whey protein was used to manufacture infant formula products within Nutricia’s Karicare range, which is owned globally by Groupe Danone, and was also supplied to seven other companies. Nutricia Ltd responded to the contamination scare by initiating a precautionary recall in New Zealand of select infant formula products. Fonterra was eventually fined NZ$300,000 for causing a food-safety scare that damaged New Zealand’s international reputation and resulted in New Zealand products being rejected from several markets.
New Zealand’s reputation was hardest hit in China in 2013, with the country introducing a ban on all New Zealand milk powder imports during the botulism scare. Infant formula food safety standards represent a highly sensitive issue within China, given the melamine scandal of 2008, when six infants died as a result of consuming infant formula products that were tainted with melamine; products that were manufactured by Fonterra subsidiary Shijiazhuang Sanlu Group. This incident dealt a terrible blow to China’s domestic infant formula industry, and ultimately resulted in the demise of the Shijiazhuang Sanlu Group. On the contrary, the Chinese reaction to the 1080 threat has been somewhat muted.
Members of the infant formula supply chain have reacted strongly to the 1080 threat to avoid a rehash of the botulism scare, with New Zealand supermarket retailers introducing extra security measures to ensure the safety of infant formula products for consumers. Progressive Enterprises Ltd’s Countdown stores relocated infant formula tins from the main shelf to behind service counters, while Foodstuffs (New Zealand) Ltd’s New World and PAK’nSAVE stores employed infant formula milk monitors in its larger stores, who were positioned at the shelf and were responsible for visually monitoring infant formula products. Nonetheless, consumers may be questioning whether it was wise for the involved dairy companies to delay sharing this information publicly. Indeed, Fonterra, Synlait Milk and A2 Milk did not inform the NZX of the 1080 threat until 3.51pm March 10th, despite knowing about the threat for four months. NZX listing rules require that material information be released to the market immediately.
The New Zealand Infant Formula Exporters Association has noted that some exporters have experienced reductions in infant formula orders to China, similar to the situation following the botulism scare. Nonetheless, it is too early to tell if sales have declined in New Zealand, and indeed, Fonterra is on track to increase its presence in China’s branded dairy industry with the acquisition of an 18.8% stake of China’s Beingmate Baby and Child Food Co Ltd, announced less than a week after the 1080 threat. Beingmate has a 9% value share of the Chinese milk formula market. It is additionally worth nothing that unlike the botulism scare, the 1080 threat targets any and/or all infant formula brands. As a result, the New Zealand police continue to test infant formula products showing signs of tampering as part of their ongoing investigation.
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